Question

1a)

The price elasticity of orange juice in Alaska is 4.0, whereas in Florida it is 1.5. Demand in Alaska is _______, whereas demand in Florida is _________

elastic; inelastic

inelastic; elastic

elastic; elastic

inelastic; inelastic

b)

If a product has a price elasticity of demand of 0.8, then what is the product’s demand?

Elastic

Inelastic

Unit elastic

It cannot be determined.

c)The income elasticity of demand for pork is -0.2. If income increases by 10 percent, what will happen to the demand for pork?

It will increase by 2 percent.

It will increase by 20 percent

It will decrease by 20 percent

It will decrease by 2 percent.

d)If 0.95 is the cross elasticity of demand for Good F with respect to Good X, which of the following is true?

Good F is a complement to Good X.

Good F is a substitute to Good X.

Good F is an inferior good.

Good F is a normal good.

Answer 1

1. The price elasticity of orange juice in Alaska is 4.0 ,whereas in Florida it is 1.5. Demand in Alaska is elastic and Demand in Florida is Elastic because Elasticity greater than 1 implies demand is elastic. Hence,option(C) is correct.

2. If a product has price elasticity of demand of 0.8, then this product's demand is inelastic. Hence,option(B) is correct.

3. Income elasticity of demand for pork= -0.2

% increase in income= 10

Income elasticity of demand= (% change in demand for pork/ % increase in income)

-0.2 (10)= % change in quantity demand for pork

% change in quantity demand for pork = -2

Demand for pork decreases by 2 percent. Hence,option(D) is correct.

4. Cross elasticity of demand for Good F with respect to Good X, then this implies that Good F is a substitute to Good X ,because for substitutes ,cross elasticity of demand is positive. Hence,option(B) is correct.