You are the manager of a supermarket, and you know that the income elasticity of peanut butter is exactly −0.7. Due to the economic recession, you expect incomes to drop by 15 percent next year. How should you adjust your purchase of peanut butter?
You are the manager of a supermarket, and you know that the income elasticity of peanut butter is exactly −0.7. Due to the economic recession, you expect incomes to drop by 15 percent next year. How should you adjust your purchase of peanut butter?
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Question
You are the manager of a supermarket, and you know that the income elasticity of peanut butter is exactly −0.7. Due to the economic recession, you expect incomes to drop by 15 percent next year. How should you adjust your purchase of peanut butter?
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Step 1
Given information,
- Income elasticity of peanut butter: -0.7
- Percentage decrease in the income: 15%
To find: change in the purchase of peanut butter
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