Question

3. If the own-price elasticity of potato chip supply is 4.0 and the price of potato chips is $3.40/bag, what would be the price of a bag of potato chips if the quantity of potato chips bags supplied increased from 2,325,000 bags to 2,790,000 bags? ANSWER: 4. If the own-price elasticity of salmon demand is –0.1 and 310,000 lb of salmon are consumed, what would be the change in the pounds of salmon consumed if the salmon price increases from $4.40/lb to $4.73/lb?

Answer 1

3. Given that own-price elasticity of supply = 4.0. Price of potato chips is $3.40/bag. Now the quantity of potato chips bags supplied increased from 2,325,000 bags to 2,790,000 bags. This implies we have

4 = (2790000 - 2325000)/((2790000 + 2325000)/2)(P2 - 3.40)/((P2 + 3.40)/2)

This gives P2 = 3.558 or approximately 3.56 per bag

4. Given that own-price elasticity of salmon demand = –0.1 and 310,000 lb of salmon are consumed, Now that the salmon price increases from $4.40/lb to $4.73/lb,  we have

-0.1 = (Q2 - 310000)/((Q2 + 310000)/2)(4.73 - 4.40)/((4.40 + 4.73)/2)

This gives Q2 = 307767 units. Hence quantity demanded falls by 2233 lb.