Question

Hello,

Is it possible to get additional assistance on these questions? This is a remedial class I am taking and my classmates/professor havent been the greatest support.

1. Calculate the price elasticity of demand where a 10 percent change in price leads to a 5 percent change in quantity demanded. Is Ed elastic or inelastic?

2. Calculate the price elasticity of demand where a 7 percent change in price leads to a 21 percent change in quantity demanded. Is Ed elastic or inelastic?

3. Calculate the cross-price elasticity of demand between bread and butter where a

20 percent decrease in the price of bread results in a 50 percent increase in the

quantity of butter demanded. Explain your answer.

4. Calculate the income elasticity of demand for sweaters where a 10 percent

increase in income leads to a 25 percent decrease in the quantity of sweaters

demanded at a given price. What type of a good is a sweater? Why?

Answer 1

1.Price Elasticity of Demand

= % Change in Quantity Demanded / % Change in Price

= 5 / 10 = 0.5

Since Elasticity of Demand is less than 1, sober can say that demand is inelastic.

2.Ped = 21 /7 = 3

Since Price Elasticity of Demand is greater than 1, so we can say that demand is Elastic.

3. Cross Price Elasticity of Demand

= % Change in Quantity Demanded of butter / % Change in Price of bread

= 50 / -20 = -2.5

If Cross Price Elasticity of Demand is negative then both goods are complementary. So, both bread and butter are complementary goods.

4. Income Elasticity of Demand

= % Change in Quantity Demanded / % Change in Income

= -25 / 10 = -2.5

Since Income Elasticity of Demand is less than 1, So we can say that sweater is an inferior good. As the income of consumer increases his Quantity Demanded for sweater Decreases.