A 10 percent increase in the price of good A leads to a 20 percent decrease in the quantity of good B demanded. It appears that: O elasticity of demand for good A 0.5 and is inelastic. O elasticity of demand for good B is -2 and is elastic. O cross-price elasticity of demand for good A is -0.5. O cross-price elasticity of demand for good B is -2. cross-price elasticity of demand for good B is 2.

A 10 percent increase in the price of good A leads to a 20 percent decrease in the quantity of good B demanded. It appears that: O elasticity of demand for good A 0.5 and is inelastic. O elasticity of demand for good B is -2 and is elastic. O cross-price elasticity of demand for good A is -0.5. O cross-price elasticity of demand for good B is -2. cross-price elasticity of demand for good B is 2.

Principles of Economics 2e

2nd Edition

ISBN:9781947172364

Author:Steven A. Greenlaw; David Shapiro

Publisher:Steven A. Greenlaw; David Shapiro

Chapter6: Consumer Choices

Section: Chapter Questions

Problem 15CTQ: Income Effects depend on the income elasticity of demand for each good limit you buy. If one of the...

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Income Effects depend on the income elasticity of demand for each good limit you buy. If one of the goods you buy has a negative income elasticity, that is, it is an inferior good, what must be true of the income elasticity of the other good you buy?
Suppose the cross-price elasticity of apples with respect to the price of oranges is 0.4, and the price of oranges falls by 3. What will happen to the demand for apples?
What is the formula for line cross-price elasticity of demand?
Economists define normal goods as having a positive income elasticity. We can divide normal goods into two types: Those whose income elasticity is less than one and those whose income elasticity is greater than one. Think about products that would fall into each category. Can you come up with a name for each category?
What is the formula for the income elasticity of demand?
What is the relationship between price elasticity and position on the demand curve? For example, as you move up the demand curve to higher prices and lower quantities, what happens lo the measured elasticity? How would you explain that?
Would you expect supply to play a more significant role in determining the price of a basic necessity like food or a luxury like perfume? Explain. Hint: Think about how the price elasticity of demand will differ between necessities and luxuries.
What is the price elasticity of demand? Can you explain it in your own words?
(Other Elasticity Measures) Complete each of the following sentences: a. The income elasticity of demand measures, for a given price, the __________ in quantity demanded divided by the __________ income from which it resulted. b. If a decrease in the price of one good causes a decrease in demand for another good, the two goods are __________. c. If the value of the cross-price elasticity of demand between two goods is approximately zero, they are considered __________.
Suppose that your demand schedule for DVDs is as follows: Price Quantity Demanded (income = 10,000) Quantity Demanded (income = 12,000) 8 40 DVDs 50 DVDs 10 32 45 12 24 30 14 16 20 16 8 12 a. Use the midpoint method to calculate your price elasticity of demand as the price of DVDs increases from 8 to 10 if (i) your income is 10,000 and (ii) your income is 12,000. b. Calculate your income elasticity of demand as your income increases from 10,000 to 12,000 if (i) the price is 12 and (ii) the price is 16.