2. The market demand function for strawberries is given by the equation: Q=276 2.5Pstr +0.6 I - 0.7 Pcr, str Where is the demand for strawberries in kilograms, Pstr is the price of strawberries per kilogram (in USD), str I is the household monthly income (in USD), and P is the price of cream per kilogram (in USD). Assume that Pstr is equal to $8, I is equal to $150, and Per is equal to $5. a. Determine the price elasticity of demand for strawberries. b. Determine the income elasticity of demand for strawberries. Is strawberry a normal/inferior good? Why? d. c. Determine the cross-price elasticity of demand for strawberries with respect to the price of cream. Based on your answer from (c), can we say cream and strawberries are substitute goods/ or complement goods? Why? Assume that the prices of strawberries and cream remain constant, but income increased three fold. What is going to happen on the demand for strawberries? Please use a diagram to provide your explanation. e.

2. The market demand function for strawberries is given by the equation: Q=276 2.5Pstr +0.6 I - 0.7 Pcr, str Where is the demand for strawberries in kilograms, Pstr is the price of strawberries per kilogram (in USD), str I is the household monthly income (in USD), and P is the price of cream per kilogram (in USD). Assume that Pstr is equal to $8, I is equal to $150, and Per is equal to $5. a. Determine the price elasticity of demand for strawberries. b. Determine the income elasticity of demand for strawberries. Is strawberry a normal/inferior good? Why? d. c. Determine the cross-price elasticity of demand for strawberries with respect to the price of cream. Based on your answer from (c), can we say cream and strawberries are substitute goods/ or complement goods? Why? Assume that the prices of strawberries and cream remain constant, but income increased three fold. What is going to happen on the demand for strawberries? Please use a diagram to provide your explanation. e.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

2. The market demand function for strawberries is given by the equation:
Q=276 2.5Pstr +0.6 I - 0.7 Pcr,
str
Where is the demand for strawberries in kilograms, Pstr is the price of strawberries per kilogram (in USD),
str
I is the household monthly income (in USD), and P is the price of cream per kilogram (in USD). Assume
that Pstr is equal to $8, I is equal to $150, and Per is equal to $5.
a. Determine the price elasticity of demand for strawberries.
b.
Determine the income elasticity of demand for strawberries. Is strawberry a normal/inferior good?
Why?
d.
c. Determine the cross-price elasticity of demand for strawberries with respect to the price of cream.
Based on your answer from (c), can we say cream and strawberries are substitute goods/ or complement
goods? Why?
Assume that the prices of strawberries and cream remain constant, but income increased three fold.
What is going to happen on the demand for strawberries? Please use a diagram to provide your
explanation.
e.

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