Question

If the price of MARTA tokens increases from $1.50 to $2.50, the number of student parking spaces demanded changes from 975 to 1025.

A) What is the arc cross-price elasticity of demand for student parking spaces with respect if MARTA tokens? _________________

B) What is the relationship between MARTA tokens and student parking spaces? These two goods are ___________ goods.

Answer 1

E_d = [(Qd₂ – Qd₁) / midpoint Qd] ÷ [(P₂ – P₁) / midpoint P]

number of student parking spaces demanded changes from 975 to 1025, so change in demand = 1025-975 = 50

midpoint of Qd = (1025+975)/2 = 1000

...

price of MARTA tokens increases from $1.50 to $2.50, change in price = 2.5 -1.5 = 1

Midpoint of P = (2.5+1.5)/2 = 2

Ed = (50/1000)/(1/2) = 0.1

A) What is the arc cross-price elasticity of demand for student parking spaces with respect if MARTA tokens?

Answer: 0.1

..

B) What is the relationship between MARTA tokens and student parking spaces? These two goods are ___________ goods.

Answer: Supplementary goods.

SInce the rise in price of one leads to a rise in quantity demanded of other, the two goods are supllements.