ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN: 9780190931919
Author: NEWNAN
Publisher: Oxford University Press
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Transcribed Image Text:2. The market demand function for strawberries is given by the equation:
Q=276 2.5Pstr +0.6 I - 0.7 Pcr,
str
Where is the demand for strawberries in kilograms, Pstr is the price of strawberries per kilogram (in USD),
str
I is the household monthly income (in USD), and P is the price of cream per kilogram (in USD). Assume
that Pstr is equal to $8, I is equal to $150, and Per is equal to $5.
a. Determine the price elasticity of demand for strawberries.
b.
Determine the income elasticity of demand for strawberries. Is strawberry a normal/inferior good?
Why?
d.
c. Determine the cross-price elasticity of demand for strawberries with respect to the price of cream.
Based on your answer from (c), can we say cream and strawberries are substitute goods/ or complement
goods? Why?
Assume that the prices of strawberries and cream remain constant, but income increased three fold.
What is going to happen on the demand for strawberries? Please use a diagram to provide your
explanation.
e.
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