A. A rise in the price of coffee from S 1.5 to $2.8 results in a rise in the quantity of tea demanded from 200 packets to 260 packets a day. Calculate the cross clasticity of demand will be approximately and explain the relationship between the two goods. B. If the quantity of banking services demanded increases by 5 per cent when the price of banking services falls by 5 per cent, is the demand for banking services inelastic, elastic, or unit elastic? Justify your answer.

A. A rise in the price of coffee from S 1.5 to $2.8 results in a rise in the quantity of tea demanded from 200 packets to 260 packets a day. Calculate the cross clasticity of demand will be approximately and explain the relationship between the two goods. B. If the quantity of banking services demanded increases by 5 per cent when the price of banking services falls by 5 per cent, is the demand for banking services inelastic, elastic, or unit elastic? Justify your answer.

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter5: Income And Substitution Effects

Section: Chapter Questions

Problem 5.9P

See similar textbooks

Similar questions

Suppose that a drug that was illegal has been made legal. It is observed that the total expenditure on this drug falls with legalisation. While non-economists might explain this in terms of a change inconsumer tastes, as economists we can explain this while sticking with the assumption that consumer tastes have not changed. Draw a demand and supply diagram showing the case where total expenditureclearly and unambiguously falls (with no shift in the demand curve) and provide a written explanation. ( maximum word limit: 100 words)
Print newspapers are losing customers and the local newspaper is currently priced at $1.50. The quantity demanded at that price is 25,000. If the newspaper raises its price to $2.00, the quantity demanded drops to 18,000. What is the coefficient (Ed) of the price elasticity of demand? Use the arc formula and interpret the meaning of the coefficient you derive. Is the demand elastic or inelastic or unit elastic? By raising the price of its newspapers as the local newspaper business helped or harmed its Total Revenues?
The demand side of the market for Sprite is comprised of 2 people. These people are William and Owen. P represents the price of 1 gallon of Sprite, and Qd represents the quantity demanded of Sprite in gallons. William's demand for Sprite is modeled by the equation QdW = 10 - 2P Owen's inverse demand for Sprite is modeled by the equation P = 10 - 2QdO (Part I) With this information, draw the market demand graph. Please label the graph for slope values, intercepts, kinks, etc. (Part II) The market supply is modeled by P = Qs. Let's say that the government places a subsidy of $8 (s = 8). As a result, what is the market equilibrium with this intervention of the government (Q**, PD**, and PS**)? (Part III) Please draw the market demand and market supply on a new graph and indicate/label the market equilibrium with the government intervention through a subsidy. Label the graph for slopes, subsidy, equilibrium points, etc.
Supposing that some intelligence information point to an increase in the price of sugar in the near future. Using a graph, illustrate how this will affect its current demand.
According to a researcher at the FDA, vegan foods are “the way if the future”. Morepersons have become health conscious and are looking for foods which will fit thislifestyle. One such food is the Beyond Burger, a plant-based alternative to beef. Notably,despite strong demand for beef burgers, the supply chain has seen a host of disruptionsthat are preventing producers from getting their products to market.Beyond Burger’s sales in Canada totaled $3.0 billion at the end of 2021, accounting for20% of all retail sales of burger patties (meat used in burgers), and 40% of the largermarket for vegan foods. By the end of 2025, sales of Beyond Burgers are projected to makeup 40% of all burger sales.i. Illustrate and explain the effect of the increased use of Beyond Burgers on (i) theburger patties market and (ii) the vegan market.
Consider the market for Widgets. Suppose that the equation for the supply curve is: Qs = 1,000P – 10,000, and the equation for the demand curve is: Qd = 50,000 – 2,000P. It turns out that the equilibrium price is 20, while the equilibrium quantity is 10,000. a. Use a 10% increase in quantity to estimate (crudely) both the elasticity of supply and the elasticity of demand at the equilibrium quantity. i) Categorize supply and demand as elastic or inelastic at the equilibrium quantity. ii) Is supply or demand relatively more inelastic at the equilibrium quantity? b. If the government enacted a tax of $3, the loss in consumer surplus would be 9,000, while the loss in producer surplus would be 18,000 (see Homework 2, question #2.) Compare this information to your answer to part (a). Explain. c. Now estimate (crudely) the elasticity of demand at a quantity of 11,000 by decreasing quantity by 1,000. Compare your estimate of elasticity to the estimate in part (a). Comment. 2. Suppose the…
true or false with reasoning. 1) ______In general, the larger the proportion of consumer’s income spent on a product, the smaller is price elasticity of demand 2) -----if a supply curve is linear and it intersects the price axis, the curve is elastic. Support your answer mathematically. Hint: write an equation of a supply curve that intersects the price axis in the general form and go from there. 3) ______Restaurants might offer a free drink with a purchase an appetizer because of the relatively low elasticity of demand in their industry.
Compare the impact of a recession that reduces consumer income by 10 percent on theconsumption of technology goods and house rentals. Suppose that the income elasticity ofdemand for technology goods is 3 and the income elasticity of demand for house rentals is0.3. Based on your response, make a policy argument to support through governmentfunding either businesses or house rentals.
Urgently need The coconut oil demand function (Buschena and Perloff, 1991) is Q = 1,200 - 9.5p + 16.2 pp + 0.2Y, where Q is the quantity of coconut oil demanded in thousands of metric tons per year, p is the price of coconut oil in cents per pound, Pp is the price of palm oil in cents per pound, and Y is the income of consumers. Assume that p is initially 45 ¢ per pound, Pp is 31 ¢ per pound, and Q is 1,275 thousand metric tons per year. Calculate the income elasticity of demand for coconut oil.
3. The following represents demand for widgets (a fictional product): QD = -47,214 – 90P + 0.8M - 2PR where P is the price of widgets, M is income, and PR is the price of a related (fictional) good, the wodget. Supply of widgets is determined by QS = 400P – 15,550 a. Determine whether widgets are a normal or inferior good, and whether widgets and wodgets are substitutes or complements. b. Assume that M = $68,500 and PR = $53. Solve algebraically to determine the equilibrium price and quantity of widgets. c. Generate a supply/demand graph in Excel. Be sure that P is the vertical axis and Q the horizontal. Does the graphical equilibrium correspond to your algebraic equilibrium? d. Now assume two events occur: income changes such that M = $69,700 and supply conditions change such that QS = 500P – 16,340. Solve algebraically for the new equilibrium price and quantity of widgets after these two changes.
**Answer bolded questions only please** The following relations describe monthly demand and supply for a computer support service to small businesses: Qd=3000-10P Qs=-1000+10P whrer Q is the number of businesses that need services and P is the monthly fee, in dollars. a. The average monthly fee where demand equal zero. $300 b. The average monthly fee where supply equal zero. $100 d. what is the equilibrium price/output level? e. Suppose demand increases and leads to a new demand curve: Qd = 3500 - 10P f. Suppose new suppliers enter the market due to the increase in demand so the new suply curve is Q=-500+10P. What are the new equilibrium price and equilibrium quantity? g. Show changes on the graph.
Graph the accompanying demand data,and then use mid point formula for Ed to determine price elasticity of demand for each of the four possible $1 price changes. What can you conclude about the relationship between the slope of a curve and its elasticity? Explain in a nontechnical way why demand is elastic in the northwest segment of the demand and inelastic in the southwest. Product price. Quantity demanded $5. 1 4. 2 3. 3 2. 4 1. 5