(a) The table below reveals the cross-price elasticity of demand for several goods. Goods pairing Air conditioning unit with electricity usage |Coke and Pepsi McDonald's burgers and Burger King burgers Butter and margarine Cross-price elasticity of demand -0.34 +0.63 +0.82 +1.54 Required: (i) Explain the sign of each of the cross-price elasticity. Describe the implication of the sign on the relationship between both items in the table above. (ii) Compare the absolute values of the cross-price elasticities and explain their magnitudes. Explain why the cross-price elasticity of McDonald's burgers and Burger King burgers is less than the cross-price elasticity of butter and margarine. (iii) Use the information in the table to calculate how a 5% increase in the price of Pepsi affects the quantity of Coke demanded.

(a) The table below reveals the cross-price elasticity of demand for several goods. Goods pairing Air conditioning unit with electricity usage |Coke and Pepsi McDonald's burgers and Burger King burgers Butter and margarine Cross-price elasticity of demand -0.34 +0.63 +0.82 +1.54 Required: (i) Explain the sign of each of the cross-price elasticity. Describe the implication of the sign on the relationship between both items in the table above. (ii) Compare the absolute values of the cross-price elasticities and explain their magnitudes. Explain why the cross-price elasticity of McDonald's burgers and Burger King burgers is less than the cross-price elasticity of butter and margarine. (iii) Use the information in the table to calculate how a 5% increase in the price of Pepsi affects the quantity of Coke demanded.

ECON MICRO

5th Edition

ISBN:9781337000536

Author:William A. McEachern

Publisher:William A. McEachern

Chapter5: Elasticity Of Demand And Supply

Section: Chapter Questions

Problem 4.9P: (Other Elasticity Measures) Complete each of the following sentences: a. The income elasticity of...

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(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 __________.
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