Question

Determine the price elasticity of demand, the cross-price elasticity of demand or the income elasticity in the following scenarios.

a. Consider the market for coffee. Suppose the price rises from $4 to $6 and quantity demanded falls from 120 to 80. What is price elasticity of demand? Is coffee elastic or inelastic?

b. John’s income rises from $20,000 to $22,000 and the quantity of hamburger he buys each week falls from 2 pounds to 1 pound. What is his income elasticity? Is hamburger a normal or inferior good?

c. The price of apples rises from $1.00 per pound to $1.50 per pound. As a result, the quantity of oranges demanded rises from 8,000 per week to 9,500. What is the cross-price elasticity of apples? Are these goods substitutes or complements?

Answer #1

(a) Price of coffee rises from $4 to $6, as a result the quantity demanded falls from 120 to 80.

% change in price of coffee = [(6 -4) / 4]*100 = 50

% change in quantity demand = [(80 - 120)/120]*100 = -33.33

Price elasticity of demand = (% change in quantity demand for coffee / % change in price of coffee)

=> Price elasticity of demand = (-33.33 / 50)

=> Price elasticity of demand = -0.67

The absolute value of price elasticity of demand for coffee is 0.67, which is less than one. It means demand for coffee is inelastic.

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(b) John’s income rises from $20,000 to $22,000 and the quantity of hamburger he buys each week falls from 2 pounds to 1 pound.

% change in income = [(22000 - 20,000)/ 20,000]*100 = 10

% change in demand of hamburger = [(1-2) /2]*100 = -50.

Income elasticity = (% change in demand for hamburger / % change
in income)

=> Income elasticity = (-50 / 10)

=> Income elasticity = -5.

Since, the income elasticity is negative, implies hamburger is an inferior good.

---------------------

(c) The price of apples rises from $1.00 per pound to $1.50 per pound. As a result, the quantity of oranges demanded rises from 8,000 per week to 9,500.

% change in price of apple = [(1.50 - 1) / 1]*100 = 50

% change in demand for oranges = [(9500 - 8000)/ 8000]*100 =18.75

Cross price elasticity = (% change in demand for oranges / % change in price of apple)

=> Cross price elasticity = (18.75 / 50)

=> Cross price elasticity = 0.375

Since, the cross price elasticity between oranges and apple is positive, implies apple and oranges are substitute goods.

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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...

a) Using the percentage change method, calculate the cross
elasticity if the price of margarine falls from $2 to $1.60 and the
quantity of butter demanded falls from 500 to 450. Are these two
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a product is 2, how much would income need to change for quantity
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Calculate the cross price elasticity of demand (CPED), specify
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a) A 10% increase in the price of pizza lead to a 12% decrease
in the quantity demanded of beer.
b) A 15% increase in the price of apples lead to a 30% increase
in the quantity demanded of oranges.
NOTE: This is a FILE UPLOAD question. Work your answer on a word
or excel file, or write down your solution...

40) The cross elasticity of demand for butter and margarine is
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B) positive because they are complements.
C) negative because they are substitutes.
D) negative because they are complements.
E) positive because they are normal goods.
41) If an increase in the price of green ketchup increases the
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A) red and green ketchup are substitutes.
B) red and green ketchup are normal goods.
C) the cross...

If the cross-price elasticity of demand between two goods is
-0.5, two goods are __________. If the income elasticity of a good
is -2, that good is a ___________.
Substitutes: Normal good
Complements: Inferior
Complements: Necessity
Substitutes: Luxury

A measure of the rate of percentage change of quantity demanded
with respect to price, holding all other determinants of demand
constant is
a.
Income elasticity of demand
b.
Own price elasticity of demand
c.
Price elasticity of market equilibrium
d.
Cross price elasticity of demand
The value of the income elasticity of demand coefficient for
Good X is given as 0.1. This means that
a.
as income increases by 10 percent, quantity demanded rises by 1
percent.
b.
as income...

In each case below, what is the value of the price elasticity
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elastic or perfectly elastic?
Price falls by 10%, quantity demanded rises by 8%
Price rises by 3%, quantity demanded falls by 3%
Price rises by 1%, quantity demanded falls by 5%
Price rises by 5%, quantity demanded collapses to zero
Price falls by 2%, quantity demanded does not change

Economists estimated that the cross - price elasticity of demand
for beer and wine is - 0.83 and the income elasticity of wine is
5.03. This means that
A. beer and wine are complements and wine is a luxury
good
B. beer and wine are substitutes and wine is a luxury
good.
C. beer and wine are complements and wine is an inferior
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D. beer and wine are substitutes and wine is an inferior
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A study reports that the estimated cross price elasticity of
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good
Tomatoes and lettuce are substitutes, and lettuce is an inferior
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Tomatoes and lettuce are complements, and lettuce is a normal
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