Question

1. 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 of demand for diamonds.

c) If each 1 percent increase in the price of pencils causes 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 ___________.

d) When John can sell totem poles for $1,800 each, he markets 60 annually. When the price falls to $600 each, he is willing to sell only 24 each year. What is his price elasticity of supply?

Answer 1

D as price elasticity of desrend (PEA) is given by (2172) V2 PJ

PED= 192-72 6f2-4 +3.01 (1927 19 (2.4-3) 2 120 2.7 132 - of = - 324 79.2 IPED = -4.00 Since", [PED>il then elastic demand b>. TED - ra & (lithe (I = income national) 8 = quantity derrord) 13-3.x (444.40 (1373) 4.4-4 - IED = 13.125

> Cross price elasticity of dermed by percentage method is given by : - COPED e f. charge in quantity demood of - Crood Al eraser) 4. chage in price (pencil ) CPED - - 27. ft.. TCPED = -2 Since cpEd is negare So they are Complements price elasticity of = 4. Change in quantity Supply d) supply (PES) focherage in price - %4 x /2) I P2P, Geotheo 24-60 18004822) C ) ahol 600-1800 I PES 20.85