Q3 1. All answers should be submitted in a Word document file upload. First, what are the factors thatinfluence "own price" elasticity of demand? In other words, what is likely to make us responsiveto price changes? When are we more likely to ignore price changes, and keep buying roughly thesame quantity of an item even when its price changes?2. Now, choose a good or service and find at least one source where its price elasticity of demandis estimated. Is the demand elastic? Do the results surprise you? Why or why not? What couldhappen to change this elasticity? Include the source of your information.3. Let's do a quick calculation. If the price of good X increases by 10%, and the quantity demandedof good X decreases by 7%, calculate X's elasticity of demand. Interpret your result.4. Now, what if the price of good Y increases by 10%, and the quantity demanded of good Xdecreases by 7%. Calculate the cross-price elasticity of demand. What does this mean about therelationship between goods X and Y? Explain in detail.5. Now suppose that income increases by 10% and the quantity demanded of good X decreases by7%. Calculate the income elasticity of demand and interpret the result. What does this say aboutgood X? Please submit all answers in a Word document file upload.

(Note: The student has asked to answer Question 3) The consumers, or buyers are those entities in…

Answered: 3. Let's do a quick calculation. If the…

Essentials of Economics (MindTap Course List)

8th Edition

ISBN:9781337091992

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter5: Elastic And Its Application

Section: Chapter Questions

Problem 10PA

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Similar questions

Would you expect supply to play a more significant role in determining the price of a basic necessity like food or a luxury like perfume? Explain. Hint: Think about how the price elasticity of demand will differ between necessities and luxuries.
Why is the supply curve with constant unitary elasticity a straight line?
Income Effects depend on the income elasticity of demand for each good limit you buy. If one of the goods you buy has a negative income elasticity, that is, it is an inferior good, what must be true of the income elasticity of the other good you buy?
The Stopdecay Company sells an electric toothbrush for $25. Its sales have averaged 8,000 units per month over the past year. Recently, its closest competitor, Decayfigh ter, reduced the price of its electric toothbrush from $35 to $30. As a result, Stopde cays sales declined by 1,500 units per month. What is the arc cross elasticity of demand between Stopdecays toothbrush and Decayfighters toothbrush? What does this indicate about the relationship between the two products? If Stopdecay knows that the arc price elasticity of demand for its toothbrush is 1.5, what price would Stopdecay have to charge to sell the same number of units as it did before the Decayfighter price cut? Assume that Decayfighter holds the price of its toothbrush constant at $30. What is Stopdecays average monthly total revenue from the sale of electric toothbrushes before and after the price change determined in part (b)? Is the result in part (c) necessarily desirable? What other factors would have to be taken into consideration?
Can you think of an industry (or product) with near infinite elasticity of supply in the short term? That is, what is an industry that could increase Qs almost without limit in response to an increase in the price?
What does a downward-sloping demand curve mean about how buyers in a market will react to a higher price?
Economists define normal goods as having a positive income elasticity. We can divide normal goods into two types: Those whose income elasticity is less than one and those whose income elasticity is greater than one. Think about products that would fall into each category. Can you come up with a name for each category?
Suppose you could buy shoes one at a time, miter than in pain. What do you predict the cross-price elasticity for left shoes and right shoes would be?
Why is the demand curve with constant unitary elasticity concave?
The equation for a demand curve is P=2/Q. What is the elasticity of demand as price falls from 5 to 4? What is the elasticity of demand as the price falls from 9 to 8? Would you expect these answers to be the same?
Isabella always spends $50 on red roses each month and simply adjusts the quantity she purchases as the price changes. What can you say about Isabella's elasticity of demand for roses?
Maria has decided always to spend one third of her income on clothing. a. What is her income elasticity of clothing demand? b. What is her price elasticity of clothing demand? c. It Marias tastes change and she decides to spend only one fourth of her income on clothing, how does her demand curve change? What is her income elasticity and price elasticity now?

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3. Let's do a quick calculation. If the price of good X increases by 10%, and the quantity demanded of good X decreases by 7%, calculate X's elasticity of demand. Interpret your result.