AAEC 1005 Lecture 10: 2:17

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brownoyster236

4 Apr 2016

School

Virginia Tech

Department

Agricultural and Applied Economics

Course

AAEC 1005

Professor

Stephenson

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Document Summary

Compliment goods ill have a negative cross price elasticity. Substitute goods will have a positive cross price elasticity. Suppose the income elasticity for salmon fillets is 1. 1 that means that a. 10% increase in income will increase demand for salmon fillets by 11% Consequrntly, the demand for ramen noodles decreases by 2%. If you drop the price bby 10%, you hope that the qbought goes up by at least 10% As you lower the price, things tend to get more inelastic.

Related Questions

1) If the supply curve is relatively flat, then the price elasticity of supply will be:

a. relatively large. b. relatively low. c. negative. d. decreasing at an increasing rate.

2)Last semester there were 5000 parking spaces available on campus. The price of a parking permit was $80 per semester, and the quantity demanded equaled the quantity supplied at this price. Suppose the number of parking spaces increases by 10% and the elasticity of demand for parking is 0.5. Parking Services should ________ the price of a permit by ________ to guarantee that quantity demanded will equal quantity supplied.

a. decrease; 10% b. decrease; 20% c. decrease; 5% d. increase; 10%

3)Two goods are complements if the: Select one:

a. price elasticity of each is greater than one. b. income elasticity of each is negative. c. cross-price elasticity is negative. d. cross-price elasticity is positive.

4)Suppose the price elasticity of supply for rocking chairs is 1.2 and the price increases by 20%. The quantity supplied will increase by ________ %. Select one:

a. 20 b. 24 c. 18 d. 12

5)The price elasticity of demand for gasoline is 0.5 and the price elasticity of supply for gasoline is 1.1. If demand rises by 25%, the price of gasoline will: Select one:

a. rise by 15.6%. b. fall by 15.6%. c. rise by 6.4%. d. fall by 6.4%.

6)The price elasticity of demand for wheat bread is 2.1 and the price elasticity of supply for wheat bread is 1.6. If demand falls by 20%, the price of wheat bread will: Select one:

a. rise by 5.41%. b. fall by 5.41%. c. rise by 18.5%. d. fall by 18.5%.

7)Good X and good Y are substitutes if the: Select one:

a. income elasticity of each is negative. b. income elasticity of each is positive. c. cross-price elasticity is negative. d. cross-price elasticity is positive.

tanhamster117

2. Income?Qd of Hamburger??Qd of Steak

Per month? per month?per month

Month 1?$750?8 lbs.?2 lbs.

Month 2?$950? 5 lbs.?4 lbs.

a. What is the income elasticity of demand for hamburgers?

b. What is the income elasticity of demand for steak?

c. From our study of demand in an earlier chapter, we know ___________is a normal good, whereas _______________is an inferior good.

3. Suppose the price of Butter Pecan Ice Cream has recently risen by 10% due to an increase in the cost of pecans used to make the ice cream. As a result, fewer Butter Pecan ice cream cones are being sold in the ice cream store where you work. You do some checking and find that Raspberry Chip ice cream cone sales are up 4%. What is the cross-price elasticity of Butter Pecan and Raspberry Chip ice cream cones? Are these two goods complements or substitutes?

12. If the price rises, the quantity supplied will be greater the

a. Longer the time that elapses.

b. More income elasticity is good.

c. Higher the price elasticity of demand for the good.

d. All of the above.

13. If the price elasticity of demand is -.5 and quantity demanded increases by 5%, the price must have

1. If there has been a 10% increase in Consumer income between two periods, what was the percentage change in demand for foreign travel? For tobacco products? For flour? (Hint use the income elasticity values in Table 4-4.)

2. Agricultural commodities are known to have a price-inelastic demand and to be necessities. How can this information allow you to explain why the income of farmersfalls (a) after a good harvest? (b) In relation to the incomes in other sectors of the economy?

3. Suppose that the cross-price elasticity of demand between McIntosh and Golden Delicious apples is 0.8, between apple and apple juice is 0.5, between apples and cheese is 0.4, and between apples and beer is 0.1 What can you say about the relationship between each set of commodities?

4. (a) If price of pork increases by 10 percent, by how much does demand for beef change? (b) If price of pork increases by 10 percent, by how much does demand for food change? (hint use the cross-price elasticity values in Table 4-5.)

AAEC 1005 Lecture 10: 2:17

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