Q5 1. All answers should be submitted in a Word document file upload. First, what are the factors thatinfluence "own price" elasticity of demand? In other words, what is likely to make us responsiveto price changes? When are we more likely to ignore price changes, and keep buying roughly thesame quantity of an item even when its price changes?2. Now, choose a good or service and find at least one source where its price elasticity of demandis estimated. Is the demand elastic? Do the results surprise you? Why or why not? What couldhappen to change this elasticity? Include the source of your information.3. Let's do a quick calculation. If the price of good X increases by 10%, and the quantity demandedof good X decreases by 7%, calculate X's elasticity of demand. Interpret your result.4. Now, what if the price of good Y increases by 10%, and the quantity demanded of good Xdecreases by 7%. Calculate the cross-price elasticity of demand. What does this mean about therelationship between goods X and Y? Explain in detail.5. Now suppose that income increases by 10% and the quantity demanded of good X decreases by7%. Calculate the income elasticity of demand and interpret the result. What does this say aboutgood X? Please submit all answers in a Word document file upload.

Income determines the affordability of the consumer. Higher the income, higher the affordability of…

Answered: 5. Now suppose that income increases by…

Essentials of Economics (MindTap Course List)

8th Edition

ISBN:9781337091992

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter5: Elastic And Its Application

Section: Chapter Questions

Problem 10PA

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Similar questions

Can you think of an industry (or product) with near infinite elasticity of supply in the short term? That is, what is an industry that could increase Qs almost without limit in response to an increase in the price?
Explain why using the midpoint formula for calculating the elasticity of demand gives the same result whether price increases or decreases, but using the initial price and quantity instead of the average does not.
If demand is elastic, will shifts in supply have a larger effect on equilibrium quantity or on price?
Why is the demand curve with constant unitary elasticity concave?
We know that a change in the price of a product causes a movement along the demand curve. Suppose consumers believe that prices will be rising in the future. How will that affect demand for the product in the present? Can you show this graphically?
If supply is elastic, will shifts in demand have a larger effect on equilibrium quantity or on price?
The equation for a supply curve is 4P=Q. What is the elasticity of supply as price rises from 3 to 4? What is the elasticity of supply as the price rises from 7 to 8? Would you expect these answers to be the same?
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?
The equation for a demand curve is P=2/Q. What is the elasticity of demand as price falls from 5 to 4? What is the elasticity of demand as the price falls from 9 to 8? Would you expect these answers to be the same?
Why is the supply curve with constant unitary elasticity a straight line?
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What is a non-technical (i.e. a layman’s) definition of elasticity? Given our working definition of economics (the study of people and the choices they make), how and why is elasticity a useful concept for economic analysis? How and why is elasticity different in the short and long runs?

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5. Now suppose that income increases by 10% and the quantity demanded of good X decreases by 7%. Calculate the income elasticity of demand and interpret the result. What does this say about good X? Please submit all answers in a Word document file upload.