KHIM CALUSIN

1) An increase in the price of hot dogs from £1.50 to £2.10 per pound increased the average
number of beef burgers demanded per week from 300 to 360 Assuming that all other economic
variables were held constant, the cross-price elasticity of demand between hot dogs and beef
burgers is? ANSWER
(360 - 300) / 300 = 0.2 = 20%
(2.10 - 1.50) / 1.5 = 0.4 = 40%
Percentage change in quantity demanded/ percentage change in price

20 / 40 = 0.5
Elasticity of demand is less than 1, so demand is inelastic

2) Suppose that an increase? in the price of carrots from $1.20 to $1.40 per pound raises the
amount of carrots that carrot farmers produce from 1.2 million pounds to 1.6 million pounds.
Using the midpoint method, what would be the elasticity of supply?
ANSWER: (1.40-1.20)/1.4)X100=15.38%
(1.6m-1.4m) x100 =28.57%
=28.57 /15.38=1.86
3) Barb’s Bakery made $200 last month selling 100 loaves of bread. This month it made $300
selling 60 loaves of bread. The price elasticity of demand for Barb’s bread is?
(PI) = 200, (PN) = 300,
(QI) = 60, \ (QN) = 100.
= ( (QN − QI) / (QN + QI) / 2 ) / ( (PN - PI) / (PN + PI) / 2 )
= ( (100 − 60) / (100 + 60) / 2) / ( (300 - 200) / (300 + 200) / 2)
= 0.125 / 0.1
= 1.25
> 1 ⇒ demand is elastic.

4) When her income increased from $10,000 to $20,000, Heather’s consumption of macaroni
decreased from 10 pounds to 5 pounds and her consumption of soy-burgers increased from 2
pounds to 4 pounds. What can you conclude the income elasticity of the foods for Heather?
ANSWER: Macaroni is an inferior good with an income elasticity of –1 and soy-burgers are
normal goods with an income elasticity of 1.

5) If the price of coffee rises from $45 per 250 grams to $55 per 250 grams per pack and as a
result the consumer’s demand for tea increases from 600 to 800 packs then the cross elasticity of
demand of tea is?
800-600/600 =200/600

55-45/45 =10/45

0.33-0.22 x 100 33/22 =1.5 Cross price Elasticityis relastic therefore goods are substitutes