The owner of Grand Central Bookstore is looking into the sales of its Health & Fitness magazine section. She finds that her equilibrium is at 800 magazines per month sold at an average price of $4.75 per magazine. When the price of these Health & Fitness magazines rose to $5.00 each, the quantity sold fell to 725 magazines per month, while the quantity supplied to her increased to 900 a month. From the scenario described, answer the questions below. Draw an appropriate graph for Grand Central’s Bookstore’s to illustrate this change in the Health & Fitness magazines market position when the price rises to $5.00. Calculate the price elasticity of demand for the Health & Fitness magazines between prices $4.75 and $5.00. Is it elastic or inelastic? How do you know? Calculate the price elasticity of supply for the Health & Fitness magazines between prices $4.75 and $5.00. Is it elastic or inelastic? How do you know based on your answer? The owner also noticed that when she ran a 20% discount on the Health & Fitness magazines the quantity of nutritious snack bars sold at the checkout register increased by 15%. Calculate the cross elasticity of demand between the two goods. Based on your answer, are they substitutes or complements? Explain why.

Price elasticity of demand refers to the proportionate change in quantity requested of a good owing…

Answered: The owner of Grand Central Bookstore is…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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The owner of Grand Central Bookstore is looking into the sales of its Health & Fitness magazine section. She finds that her equilibrium is at 800 magazines per month sold at an average price of $4.75 per magazine. When the price of these Health & Fitness magazines rose to $5.00 each, the quantity sold fell to 725 magazines per month, while the quantity supplied to her increased to 900 a month. From the scenario described, answer the questions below.

Draw an appropriate graph for Grand Central’s Bookstore’s to illustrate this change in the Health & Fitness magazines market position when the price rises to $5.00.
Calculate the price elasticity of demand for the Health & Fitness magazines between prices $4.75 and $5.00. Is it elastic or inelastic? How do you know?
Calculate the price elasticity of supply for the Health & Fitness magazines between prices $4.75 and $5.00. Is it elastic or inelastic? How do you know based on your answer?
The owner also noticed that when she ran a 20% discount on the Health & Fitness magazines the quantity of nutritious snack bars sold at the checkout register increased by 15%. Calculate the cross elasticity of demand between the two goods. Based on your answer, are they substitutes or complements? Explain why.

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