Question

Microeconomics Chapter 4: Consumer and Producer Surplus Flashcards | Quizlet is backward bending. Question 7 0.2 Refer to the accompanying table to answer the following questions Price of Erasers $.50 $1.00 $1.50 $2.00 $2.50 Quantity Demanded of Erasers Quantity Demanded of Pencils 12 10 8 7 6 10 The price of erasers increases from $0.50 to $1.00 per eraser. Using the midpoint method, what is the cross-price elasticity of demand between pencils and erasers? 0.13 0-3 7.67 0.13 0.2 pts Question 8

Answer 1

Price of erasers increases from $0.50 to $1.00. And because of this quantity demanded of pencils decreases from 12 to 11 pencils.

By using mid point method : Cross price elasticity of demand between erasers and pencils

= (% change in quantity demanded of pencils)/(% change in price of erasers)

% change in quantity demanded of pencils = (11-12) / [(11+12)/2]

= (-1 / 11.5) = - 0.087

% change in price of erasers = (1-0.50)/ [(1+0.50)/2]

= (0.50 /0.75) = 0.67

Cross price elasticity of demand = -0.087 / 0.67

= -0.1298 = -0.13

Hence, option(A) is correct.