Question

1/29/2020 Chapter 5, 6, 7 & 8 Assignments(2) (1). Chapter 5 Assignments Name 5.1. Use the information from Table 5 & Figure 5 below: Point A | B C Price Quantity Demanded 0.50 1 0.452 0.404 0.356 0.30 9 0.25 12 0.2016 D Im 0.15 0.10 0.05 S0.55 0.50 PRICE 0 4 8 12 16 20 24 Quantity Demanded 28 32

Answer 1

Answer)

(a) Coffee and Donuts:

Increase in price of coffee from 89 cents to 99 cents

Change in price = 10 cents

Mid - price = (89 + 99)/2 = 94 cents

Percent increase in price = (10/94)× 100 = 10.6%

Decrease in the sales of Donuts from 950 to 850

Change in quantity = - 100 units

Mid - Quantity = (950 + 850)/2 = 900 units

Percent decrease in donuts quantity = (-100/900)×100 = - 11.11%

Cross elasticity = (% change in quantity)/(% change in price)

= (- 11.11 / 10.6)

Cross elasticity =  -1.05

As the cross price elasticity is negative, it means that the Coffee and Donuts are Complement goods.

(b) Cinnabon and Donuts:   

Decrease in price of cinnabon from $1.89 to $1.69

Change in price = - 20 cents

Mid - price = (1.89 + 1.69)/2 = $1.79

Percent decrease in price = - (0.20/1.79) × 100 = -11.17

Decrease in the sales of Donuts from 950 to 750

Change in quantity = - 200  units

Mid - Quantity = (950 + 750)/2 = 850 units

Percent decrease in donuts quantity = (-200/850)×100 = - 23.53

Cross elasticity = (% change in quantity)/(% change in price)

= (- 23.53 / -11.17)

Cross elasticity = 2.11

As the cross price elasticity is positive, it means that the Cinnabon and Donuts are Substitute goods.