Problem 7 Suppose that you collect the following data on the quantity and price of ice cream, the income of the average consumers in the market for ice cream, and the price of frozen yogurt over a period of time: Quantity of Ice Price of Ice Price of Frozen Cream Income Cream Yogurt Demanded 10 $3.00 $37,500 $3.00 30 $1.00 $37,500 $3.00 30 $3.00 $62,500 $3.00 $3.00 $37,500 $7.00 a.) What is the price elasticity of demand for ice cream? b.) What is the income elasticity of demand for ice cream? c.) Is ice cream a normal good or an inferior good? d.) What is the cross price elasticity of demand for ice cream and frozen yogurt? e.) Does this imply that ice cream and frozen yogurt are complements or substitutes? f.) Does your answer to part e.) match your intuition for whether or not ice cream and frozen yogurt are complements or substitutes? If not, how can you account for the value of the cross price elasticity implied by the data?

Problem 7 Suppose that you collect the following data on the quantity and price of ice cream, the income of the average consumers in the market for ice cream, and the price of frozen yogurt over a period of time: Quantity of Ice Price of Ice Price of Frozen Cream Income Cream Yogurt Demanded 10 $3.00 $37,500 $3.00 30 $1.00 $37,500 $3.00 30 $3.00 $62,500 $3.00 $3.00 $37,500 $7.00 a.) What is the price elasticity of demand for ice cream? b.) What is the income elasticity of demand for ice cream? c.) Is ice cream a normal good or an inferior good? d.) What is the cross price elasticity of demand for ice cream and frozen yogurt? e.) Does this imply that ice cream and frozen yogurt are complements or substitutes? f.) Does your answer to part e.) match your intuition for whether or not ice cream and frozen yogurt are complements or substitutes? If not, how can you account for the value of the cross price elasticity implied by the data?

ECON MICRO

5th Edition

ISBN:9781337000536

Author:William A. McEachern

Publisher:William A. McEachern

Chapter4: Demand, Supply, And Markets

Section: Chapter Questions

Problem 1.2P

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