Question

The following table lists the cross elasticity of demand for several goods, where the percentage quantity change is measured for the first good of the pair, and the percentage price change is measured for the second good.

Good Cross elasticity of demand

Air-conditioning units and kilowatts of electricity -0.34

Coke and Pepsi 0.63

High-fuel-consuming SUVs and gasoline -0.28

McDonald’s burgers and Harvey burgers 0.82

Butter and Margarine 1.54

1.Explain the sign of each of the cross elasticities. What does it imply about relationship between the two goods in questions.

2. Compare the absolute value of the cross elasticities and explain their magnitudes. For example, why is the cross elasticity of demand of McDonald’s burgers and Harvey’s burgers less than cross elasticity of butter and margarine?

3. Use the information in the table to calculate how a 5% increase in the price of Pepsi affects the quantity of Coke demanded.

4. Use the information in the table to calculate how a 10% decrease in the price of gasoline affects the quantity of SUVs demanded

Answer #1

1 - The negative sign before the cross price elasticity denotes that the goods are complemetary goods and positive cross price elasticity denotes that goods are substitute goods.

2 - Coke and pepsi are close substitutes hence their cross price elasticity is positive.

AC and electricity used are complements. Gretaer the use of AC , more will be electricity used , hence cross price elasticity is negative.

SUV and gasoline are complements showing negative cross price elasticity.

Mc Donald and Harvy burgers can be called as less perfect subtitutes that margariane and butter which have greater cross price elasticity

3 - % change in quantity of coke demanded

= 0.63*5

=3.15 %

Hence demand will rise by 3.15 %

4 - change in demand = -0.28 * 10

= -2.8 %

Hence demand will fall by 2.8 %

Cross-price elasticity of demand is calculated as
the
total percentage change in quantity demanded divided by the total
percentage change in price.
percentage change in the price of good 1 divided by the percentage
change in the price of good 2.
percentage change in quantity demanded divided by the percentage
change in income.
percentage change in quantity demanded of good 1 divided by the
percentage change in the price of good 2.

a) Using the percentage change method, calculate the cross
elasticity if the price of margarine falls from $2 to $1.60 and the
quantity of butter demanded falls from 500 to 450. Are these two
products substitutes or complements? b) If the income elasticity of
a product is 2, how much would income need to change for quantity
to increase by 20%? Is this a normal or inferior good?

40) The cross elasticity of demand for butter and margarine is
likely to be A) positive because they are substitutes.
B) positive because they are complements.
C) negative because they are substitutes.
D) negative because they are complements.
E) positive because they are normal goods.
41) If an increase in the price of green ketchup increases the
demand for red ketchup, then
A) red and green ketchup are substitutes.
B) red and green ketchup are normal goods.
C) the cross...

The cross-price elasticity of demand between goods X and Y
measures the responsiveness of the quantity of X demanded to
changes in the price of Y.
is the percentage change in the price of Y divided by the
percentage change in the quantity of X demanded.
is greater than zero if X and Y are substitutes.
both a and c
all of the above

The cross-price elasticity of demand measures the
absolute change in the quantity demanded of one good divided by
the absolute change in the price of another good.
percentage change in the price of one good divided by the
percentage change in the quantity demanded of another good.
percentage change in the quantity demanded of one good in one
location divided by the price of the same good in another
location.
percentage change in the quantity demanded of one good divided...

Q8. Cross-price elasticity of demand is calculated as
the
A) percentage change in quantity demanded divided by percentage
change in price of a good.
B) percentage change in quantity demanded of one good divided by
percentage change in price of a different good.
C) percentage change in quantity sold divided by percentage
change in buyers' incomes.
Q.9. If the cross-price elasticity of demand for
computers and software is negative, this means the two goods
are
A) substitutes. B) complements. C)...

A measure of the rate of percentage change of quantity demanded
with respect to price, holding all other determinants of demand
constant is
a.
Income elasticity of demand
b.
Own price elasticity of demand
c.
Price elasticity of market equilibrium
d.
Cross price elasticity of demand
The value of the income elasticity of demand coefficient for
Good X is given as 0.1. This means that
a.
as income increases by 10 percent, quantity demanded rises by 1
percent.
b.
as income...

Determine the price elasticity of demand, the cross-price
elasticity of demand or the income elasticity in the following
scenarios.
a. Consider the market for coffee. Suppose the price rises from
$4 to $6 and quantity demanded falls from 120 to 80. What is price
elasticity of demand? Is coffee elastic or inelastic?
b. John’s income rises from $20,000 to $22,000 and the quantity
of hamburger he buys each week falls from 2 pounds to 1 pound. What
is his income...

The price elasticity of demand measures:
Select one:
a. the percentage change in quantity demanded of a good in
response to a one percentage change in
income
b. none of the above
c. the change in the number of units demanded of a good in
response to a one percentage change in
its price
d. the percentage change in quantity demanded of a good in
response to a one dollar change in its
price

The cross elasticity of demand for good A and good B is
minus−0.7.
This means that
A.
if the price of good A increases by 10 percent, the quantity
demanded of good B decreases by 7 percent.
B.
the goods are substitutes.
C.
if the price of good A increases by 10 percent, the quantity
demanded of good B increases by 7 percent.
D.
the goods are complements.
E.
both A and D are correct.

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