Question

Question 1 Suppose the cross-price elasticity of demand between grapefruit juice and orange juice is approximately 6. What does this mean? If the price of grapefruit juice rises by $1.6 more cartons of orange juice will be purchased. A1 percent decrease in the price of grapefruit juice leads to a 6 percent increase in orange juice consumption A6 percent increase in the price of grapefruit juice leads to a 1 percent increase in orange juice consumption The demand for orange juice is 6 times greater than the demand for grapefruit juice. > Moving to another question will save this response.

Answer 1

1. This means that a 6 percent increase in the price of grapefruit juice leads to a 1 percent increase in orange juice consumption. The cross elasticity of demand or cross-price elasticity of demand measures the responsiveness of the quantity demanded for a good to a change in the price of another good, other things being equal.

2. The price elasticity of demand for a good or service will be greater in absolute value if many close substitutes are available for it. In this case it will be easier for customer to switch to those substitutes when price for that good or service increases.

3. If a frost destroys the tomato crop in California but farmers see an increase in their revenues, then this means that the demand for tomatoes is price inelastic. Inelastic goods like tomatoes have fewer substitutes (in the form of canned tomatoes only) and price change doesn't affect quantity demanded as much.

4.Perfectly inelastic demand is represented by demand curve which is vertical and relatively inelastic demand is represented by demand curve which is downward sloping. A perfectly inelastic demand is one when there is no change produced in the demand of a product with change in its price. The numerical value for perfectly inelastic demand is zero.Relatively inelastic demand is one when the percentage change produced in demand is less than the percentage change in the price of a product.The numerical value of relatively inelastic demand ranges between zero to one.