The accompanying table lists the cross-price elasticities of demand for several goods, where the percent quantity change is measured for the first good of the pair, and the percent price change is measured for the second good. Good Cross-price elasticities of demand Air-conditioning units and kilowatts of electricity -0.34 Coke and Pepsi +0.63 High-fuel-consuming sport-utility vehicles (SUVs) and gasoline -0.28 McDonald’s burgers and Burger King burgers +0.82 Butter and margarine +1.54 Explain the sign of each of the cross-price elasticities. What does it imply about the relationship between the two goods in question? Compare the absolute values of the cross-price elasticities and explain their magnitudes. For example, why is the cross-price elasticity of McDonald’s burgers and Burger King burgers less than the cross-price elasticity of butter and margarine? Use the information in the table to calculate how a 5% increase in the price of Pepsi affects the quantity of Coke demanded. Use the information in the table to calculate how a 10% decrease in the price of gasoline affects the quantity of SUVs demanded.

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Elasticity of Demand and Supply

The elasticity of demand and supply are two important concepts of microeconomics. The elasticity of demand measures the responsiveness of consumers’ demands to the price change, changes in income of consumers, and changes in the price of the related goods. Similarly, the elasticity of supply refers to the proportionate change in the quantity supplied due to the proportionate change in the price. In other words, it can be said that elasticity of supply measures how the quantity of supply changes when the price changes of that particular product.