Q1) Consider the following information for product A and related product B in consumption: Quantity A Traded Price of A Income of consumers Price of B 1,200 $1 $10,000 $1 1,800 $0.90 S8000 $0.80 1) Determine the price of elasticity of demand for product A, the income elasticity of demand for the product A and the cross-price elasticity of demand between product A and B using the mid-point formula. Based on the elasticities, explain how you classify product A in terms of its price and income elasticities of demand and also the relationship between product A and B II) Given the price of the product A Decreases by 5% consumers' income decreases by 3% and the price of the product B increase by 4%, compute the effect on the revenue from product A, assuming each change occurs seperately

Q1) Consider the following information for product A and related product B in consumption: Quantity A Traded Price of A Income of consumers Price of B 1,200 $1 $10,000 $1 1,800 $0.90 S8000 $0.80 1) Determine the price of elasticity of demand for product A, the income elasticity of demand for the product A and the cross-price elasticity of demand between product A and B using the mid-point formula. Based on the elasticities, explain how you classify product A in terms of its price and income elasticities of demand and also the relationship between product A and B II) Given the price of the product A Decreases by 5% consumers' income decreases by 3% and the price of the product B increase by 4%, compute the effect on the revenue from product A, assuming each change occurs seperately

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Point on Demand Curve: A B C D E F G H I Price (P): $40 $35 $30 $25 $20 $15 $10 $5 $0 Quantity Demanded (QD): 0 5 10 15 20 25 30 35 40 b) Calculate the price elasticity of demand between each set of points on the demand curve (i.e., between A and B, B and C, C and D, D and E, etc.) (c) explain how and why the price elasticity of demand changes as you move along this demand curve. how and why the effect of price changes on total revenue is tied to elasticity.
. Determinants of the price elasticity of demand Consider some determinants of the price elasticity of demand: • The availability of close substitutes • Whether the good is a necessity or a luxury • How broadly you define the market • The time horizon being considered A good without any close substitutes is likely to have relatively...........................( elastic/inelastic) demand, since consumers cannot easily switch to a substitute good if the price of the good rises. A good’s price elasticity of demand depends in part on how necessary it is relative to other goods. If the following goods are priced approximately the same, which one has the least elastic demand?(multiple choice) a) Sports car b) A heart valve for heart attack victims The price elasticity of demand for a good also depends on how you define the good. Organize the goods found in the following table by indicating which is likely to have the most elastic…
v Question Completion Status: 28 24 20 S2 16 S1 ND1 D2 01 0 4 4 8 12 16 20 24 Q 14. If this figure depicts the market for product X, and the demand for product X changed from D2 to D1 as a result of an increase in the price of a related product Y from $45 to $55, the cross price elasticity of demand for product X (calculated at Px = $18) is and the two products are O "1/6, substitutes" "6, substitutes" O "-6, complements "1/6, complements" QUESTION 15. Click Save and Submit to save and submit. Click Save All Answers to save all answers. Save All Answers 46 24 L AUG P 13 21 .... 284
1) Elasticity of Demand: a) Define and calculate price elasticity of demand using the mid-point method. b) Discuss the determinants of price elasticity of demand and their impact on the degree of elasticity. 21 c) Provide real-world examples illustrating the concept of price elasticity of demand.
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(2) Show graphically and explain intuitively why price elasticity of demand varies along a linear demand curve.
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The extended demand function of good X is: QDX = 1400 20 PX - 10 PY + 0.1 M where: QDX = quantity demanded of good X PX Price of good X PY = Price of related good Y (related in consumption to good X) M = Average consumer income. Fix the following variables: PX = 50 M = 10,000 Assume: PY changes from $50 to $80 What is the cross-price elasticity of the demand of good X with respect to PY [Use the arc elasticity formula.] a. -0.69 b. C. d. -0.87 Based on your answer to the previous question, goods X and Y are: b. 0.69 a. inelastic C. 0.87 d. complements inferior substitutes
The cross price elasticity for beef with respect to chicken is 0.0572. if the price of beef rose 10 percent, the demand for the chicken would _________ by _________ percent