Question

- Explain the concept of cross price elasticity of demand and describe the two cases that determine whether it is positive or negative.

Answer #1

The concept of price elasticity of demand is an important concept
in demand analysis in an industry (Rothschild Index)
Describe how this applies to business decisions. Give it
examples of cases relevant to business

Explain the concepts of own-price elasticity, cross-price
elasticity and income elasticity of demand. State the factors that
determine own-price elasticity of demand for a normal good

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...

Define the concept of price elasticity of demand and describe
how an increase in the number of substitute products affects the
price elasticity of demand of a good.

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

The price elasticity of demand uses the absolute value because
it is sometimes negative or always negative
.The income and cross elasticities of demand do not use the
absolute value because they can be negative only, positive
only or positive or negative
The income elasticity of demand is positive for a normal
or inferior good and negative for an inferior or
normal good.
The cross-price elasticity of demand is positive for
complementary or substitute goods and negative for
complementary or...

Cross-price elasticity of demand is
a. negative for complementary goods.
b. negative for substitute goods.
c. positive for general goods.
d. unitary for secondary goods.

Taking the absolute value of the cross-price elasticity of
demand is incorrect because it would:
remove the ability to tell whether the two products have
inelastic demand or elastic demand.
cause the value of the cross-price elasticity of demand to
become smaller.
remove the ability to tell whether the two products are
substitutes or complements.
cause the value of the cross-price elasticity of demand to
become zero.
The percent change in insulin demanded for any price change is
zero. The...

Provide an example of the concept of the Price elasticity of
Demand and explain its impact on a business.

40) The cross elasticity of demand for butter and margarine is
likely to be A) positive because they are substitutes.
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
demand for red ketchup, then
A) red and green ketchup are substitutes.
B) red and green ketchup are normal goods.
C) the cross...

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