Suppose the income elasticity of demand for food is 0.50 and the price elasticity of demand is – 1.50. Suppose also that Felicia spends $10,000 a year on food, the price of food is $2, and that her income is $25,000. If a sales tax on food caused the price of food to increase to $2.50, what would happen to her consumption of food? Because a large price change is involved, use the arc elasticity to measure the price elasticity of demand rather than a point elasticity. Felicia's consumption of food would decrease by rounded to two decimal places.) units. (Enter your response
Suppose the income elasticity of demand for food is 0.50 and the price elasticity of demand is – 1.50. Suppose also that Felicia spends $10,000 a year on food, the price of food is $2, and that her income is $25,000. If a sales tax on food caused the price of food to increase to $2.50, what would happen to her consumption of food? Because a large price change is involved, use the arc elasticity to measure the price elasticity of demand rather than a point elasticity. Felicia's consumption of food would decrease by rounded to two decimal places.) units. (Enter your response
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Question
Suppose that Felicia gets a tax rebate of
$2,500
to ease the effect of the sales tax. What would her consumption of food be now?
(Again,
use an arc income elasticity to answer this question instead of a point income
elasticity.)
Felicia's consumption of food would now be
nothing
units![Suppose the income elasticity of demand for food is 0.50 and the price elasticity of demand is -1.50. Suppose also that Felicia spends $10,000 a year on food, the price of food is $2, and that her income is $25,000.
If a sales tax on food caused the price of food to increase to $2.50, what would happen to her consumption of food? Because a large price change is involved, use the arc elasticity to measure the price elasticity of demand rather than a point elasticity.
Felicia's consumption of food would decrease by [ ] units. (Enter your response rounded to two decimal places.)
**Graph Explanation:**
The graph shows a budget constraint and indifference curve.
- The horizontal axis represents the quantity of "Food" consumed, ranging from 0 to 14,000.
- The vertical axis represents "Other Consumption," ranging from 0 to 14,000.
- The budget line \( L_1 \) is downward sloping, indicating Felicia's budget constraint before the price change.
- The indifference curve \( U_1 \) is convex to the origin, showing combinations of food and other goods that provide the same level of utility to Felicia.
- \( C_1 \) and \( F_1 \) are marked on the graph as points on the axes, representing the intersection of the original budget line with the indifference curve.
- A green point on the graph indicates the optimal consumption bundle given Felicia's original budget constraints before the price change.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F0d2645f4-8932-478d-a4f1-b0cb39a2274c%2Fcd571d5c-4f14-425a-82f5-93343b021897%2Fkaxt4i9_processed.png&w=3840&q=75)
Transcribed Image Text:Suppose the income elasticity of demand for food is 0.50 and the price elasticity of demand is -1.50. Suppose also that Felicia spends $10,000 a year on food, the price of food is $2, and that her income is $25,000.
If a sales tax on food caused the price of food to increase to $2.50, what would happen to her consumption of food? Because a large price change is involved, use the arc elasticity to measure the price elasticity of demand rather than a point elasticity.
Felicia's consumption of food would decrease by [ ] units. (Enter your response rounded to two decimal places.)
**Graph Explanation:**
The graph shows a budget constraint and indifference curve.
- The horizontal axis represents the quantity of "Food" consumed, ranging from 0 to 14,000.
- The vertical axis represents "Other Consumption," ranging from 0 to 14,000.
- The budget line \( L_1 \) is downward sloping, indicating Felicia's budget constraint before the price change.
- The indifference curve \( U_1 \) is convex to the origin, showing combinations of food and other goods that provide the same level of utility to Felicia.
- \( C_1 \) and \( F_1 \) are marked on the graph as points on the axes, representing the intersection of the original budget line with the indifference curve.
- A green point on the graph indicates the optimal consumption bundle given Felicia's original budget constraints before the price change.
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