Question

The following shows a demand schedule for mini-cupcakes in the St. Louis Metropolitan area. Competing bakeries use this information to decide pricing decisions. Use this table to complete the questions on elasticity.

Price per dozen	Dozen per day (quantity)
0	1200
3	1000
6	800
9	600
12	400
15	200
18	0

Below which price is market demand considered “inelastic”?

The income in the St. Louis region increases. For every $1000 increase in income, demand for cupcakes increases by 25 dozen/day. If average income increases from $48,000 to $53,000, what is the income elasticity of demand at $6?

Finally, assume that cupcakes and sprinkles are complementary goods. A $1 increase in the price of cupcakes reduces the demand for sprinkles by 100. Consumers were purchasing 500 sprinkles when the price of cupcakes was $12. The price of cupcakes increased from $12 to $13. Use this information to answer the following questions.  

What is the cross price elasticity between sprinkles (quantity) and cupcakes (price)?

Answer 1