a)The hobbit family buys 72 vegetarian specials annually at a price of $3.00 each but would consume 192 per year if the price dropped to $2.40. Calculate their price elasticity of demand. b) if a strong recovery raises national income from $4.0 trillion to 4.4 trillion and diamond sales jump from 3 million to 13 million carats annually, calculate the income elasticity for diamonds. c) if each 1 percent increase in the price of pencils cause a 2 percent decline in the quantity of erasers sold, the cross-price elasticity of demand for these goods is about ----- and the goods are -------

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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.