Homework 2 chapter 5

Scenario 5-1 Suppose that when the average college student's income is $10,000 per year, the annual quantity demanded of Patty's Pizza is 50 and the annual quantity demanded of Sue's Subs is 80. Suppose that when the price of Patty's Pizza increases from $8 to $10 per pie, the quantity demanded of Sue's Subs increases from 80 to 100. Suppose also that when the average student's income increases to $12,000 per year, the annual quantity demanded of Patty's Pizza increases from 50 to 60. Refer to Scenario 5-1. Using the midpoint method, the cross price elasticity of demand is

1, and the two goods are substitutes

If a 15% change in price results in a 20% change in quantity supplied, then the price elasticity of supply is about

1.33, and supply is elastic

Refer to Figure 5-17. Using the midpoint method, what is the price elasticity of supply between point B and point C?

1.44

Suppose goods A and B are substitutes for each other. We would expect the cross-price elasticity between these two goods to be

Positive

Figure 5-19 Refer to Figure 5-19. Which of the following statements is correct?

Supply curve c is more Inelastic than supply curve d

Scenario 5-1 Suppose that when the average college student's income is $10,000 per year, the annual quantity demanded of Patty's Pizza is 50 and the annual quantity demanded of Sue's Subs is 80. Suppose that when the price of Patty's Pizza increases from $8 to $10 per pie, the quantity demanded of Sue's Subs increases from 80 to 100. Suppose also that when the average student's income increases to $12,000 per year, the annual quantity demanded of Patty's Pizza increases from 50 to 60. Refer to Scenario 5-1. Using the midpoint method, what is the income elasticity of demand for pizza and what does the value indicate about the demand for pizza?

The income elasticity is 1 so pizza is a normal good

If the price of milk rises, when is the price elasticity of demand likely to be the lowest?

immediately after the price increase

Goods with many close substitutes tend to have

more elastic demands

The price elasticity of demand measures how much

quantity demanded responds to a change in price

For a good that is a luxury, demand

tends to be elastic

The value of the price elasticity of demand for a good will be relatively large when

the good is a luxury rather than a necessity

Demand is said to be inelastic if

the quantity demanded changes only slightly when the price of the good changes.

If the cross-price elasticity of demand for two goods is -4.5, then

the two goods are complements

If the cross-price elasticity of demand for two goods is 1.25, then

the two goods are substitutes