HW 6
If the price elasticity of supply is 1.5, and a price increase led to a 1.8% increase in quantity supplied, then the price increase is about
1.20%.
If a 25% change in price results in a 40% change in quantity supplied, then the price elasticity of supply is about
1.60, and supply is elastic
Last year, Tess bought 5 handbags when her income was $54,000. This year, her income is $60,000, and she purchased 7 handbags. Holding other factors constant, it follows that Tess's income elasticity of demand is about
3.17, and Tess regards handbags as normal goods.
OPEC has coordinated a reduction in supply that was
more profitable in the short run than in the long run.
Suppose that when the price of good X falls from $6 to $4, the quantity demanded of good Y rises from 30 units to 40 units. Using the midpoint method, the cross-price elasticity of demand is
-0.71, and X and Y are complements.
OPEC successfully raised the world price of oil in the 1970s and early 1980s, primarily due to
an inelastic demand for oil and a reduction in the amount of oil supplied
Suppose the cross-price elasticity of demand between hot dogs and mustard is -2.00. This implies that a 20 percent increase in the price of hot dogs will cause the quantity of mustard purchased to
fall by 40 percent.
If an increase in income results in a decrease in the quantity demanded of a good, then for that good, the
income elasticity of demand is negative
Suppose the income elasticity of demand is -0.5 for good X. This implies that a 5% decrease in income will cause the quantity demanded of good X to
increase by 2.5%, and X is an inferior good.
Holding all other forces constant, if decreasing the price of a good leads to a decrease in total revenue, then the demand for the good must be
inelastic.
Suppose goods A and B are substitutes for each other. We would expect the cross-price elasticity between these two goods to be
positive.
Cross-price elasticity of demand measures how
the quantity demanded of one good changes in response to a change in the price of another good.
The maximum price that a buyer will pay for a good is called
willingness to pay
