Question

Problem-solving exercises: (a) Use the arc-approximation formula to calculate the price-elasticity of demand coefficient of a firm's product demand between the (quantity, price) points of (12, $20) and (18, $16). (b) Calculate the cross-price elasticity of demand coefficient of a firm's product X, given that a 10% increase in the price of its close substitute, product Y, causes the quantity demand of product X to increase by 6%. c) Calculate the income-elasticity of demand coefficient for a product for which a 5% increase in consumers' income will increase the quantity demanded by 4%.

Answer #1

b)

Cross price elasticity is calculated by dividing the % change in quantity demanded of good X by the % change in price of good Y.

% change in quantity demanded of good X = 6% increase

% change in price of good Y = 10% increase

Cross price elasticity between X and Y= 6%/10%=0.6.

Since the coefficient is positive, X and Y are substitute goods.

c)

Income elasticity of demand tells us how the demand for a good changes due to change in income, other things remaining the same.

Income elasticity of demand =

% change in quantity demanded/% change in consumers income

= 4%/5%=0.8.

a)

1) Using the midpoint method, the price elasticity of demand is
determined to be about 0.85. If there is a 10% decrease in the
quantity demanded of the product then what effect would this have
on the price of the product?
A decrease in the price of the product from $8.50 to $10
A 11.8% increase in the price of the product
An increase in the price of the product from $8.50 to $10
2)The ________ is negative for complementary...

DD: p=1600-0.04Q^2
a) calculate the arc elasticity of demand between Q=50 and
60
b) calculate the point elasticity of demand at Q=55
c) are the two estimates same? Very close? Why or why not?
d) if price rises by 3%, calculate the corresponding percentage
change in quantity demanded

A. Use the midpoint formula to calculate elasticity of demand
for the following data values for product A. Must show
work to receive full points. (Correct work 4 points
Correct answer 2 points)
Price
Quantity
$10
200
$12
160
B. Your goal is to maximize
revenue for product A. After finding the elasticity of
demand for product A, would you do anything to the price of product
A? Explain in detail what would you do and
why. (3 points Answer must be in sentences)

2. Calculate price elasticity of demand, cross price elasticity
of demand and income price elasticity of demand. Then indicate
whether the alternative good is a complement or substitute. P =10,
PA=20, and I =100.
a) Q = 500 - 3P + 4PA + I (I stands for income)
b) Q = 100 - 0.1P - 0.5PA - 0.2I

3.Factors that affect a product’s price elasticity of demand
are
A. availability of close substitutes.
B. passage of time.
C. necessity versus luxury.
D. definition of the market.
E. All of the above are correct.
4. If a price increase causes a decrease in total revenues
(total expenditures), then the product is considered to be
A. price elastic.
B. price inelastic.
C. unitary elastic.
D. All of the above are correct.
E.None of the above are correct.
5.Price elasticity of...

QUESTION 36 The price elasticity of demand for Alpha personal
computer is estimated to be -2.0. If the price of the computers
decreases by 5%, what would be the expected percentage changes in
the quantity demanded and in the total revenue for the company? a)
Quantity demanded would decrease by 10% and total revenue would
decreases by 5%. b) Quantity demanded would increase by 10% and
total revenue would increases by 5%. c) Quantity demanded would
decrease by 10% and...

Suppose that the price elasticity of demand for bus trips is
equivalent to │ED│ = 0.5. While the income elasticity of demand for
bus trips is equal to EI = - 0.1 and the cross elasticity of demand
for bus trips with respect to the price of gasoline is E Bus,
Gasoline = - 0.2.
to. Would an increase in the price of the bus ticket increase or
decrease the revenue of the bus company?
b. If the price of...

If the price elasticity of demand for a product is -0.2...
A. Demand is price elastic
B. An increase in price will increase revenue
C. A decrease in price will reduce costs
D. A fall in price by 10% will reduce quantity demanded by
2%
What does a demand curve show?
A. What customers want to buy and all other things unchanged
B. The quantity demanded at different income levels
C. What consumers are willing and able to purchase at...

The cross-price elasticity of demand for peanut butter with
respect to the price of jelly is -0.3. a. Are they complement or
substitute products? Explain your answer. (5pts.) b. If we expect
the price of jelly to decline by 15%, what is the expected change
in the quantity demanded for peanut butter? (Show your
calculations) (10pts.)Immersive Reader (15 Points)

1) The income elasticity of demand for Good Z is –0.2, while the
cross-price elasticity of demand between Good Z and Good Y is 1.63.
Which of the following statements is correct regarding Good Z?
Group of answer choices
Good Z is a inferior good, and Goods Z and Y are
complements.
Good Z is an inferior good, and Goods Z and Y are
substitutes.
Good Z is a normal good, and Goods Z and Y are complements.
Good Z...

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