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Your price elasticity of demand for bananas is 4. If the price of bananas rises 5%. 

a. the percentage change in the quantity of bananas you buy?

b. The change in your expenditure on bananas?

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Kritika Krishnakumar
Kritika KrishnakumarLv10
28 Sep 2019

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Related questions

You are a produce grocer who sells two products: apples and bananas (you sell them in bushels, but we’ll just consider a bushel to be one unit of fruit). Each costs you $1 per bushel wholesale, which is your only cost. You can prevent resale among your customers, of which there are three, each with unit inelastic demand. Consumer 1 has a willingness to pay of $2 per apple (bushel) and $8 per banana (bushel). For Consumer 2, the willingness to pay is $4 for apples and $6 for bananas. Consumer 3 would pay up to $9 for apples but only $1 for bananas.

A. Suppose you price apples and bananas separately. What is the profit-maximizing price for each?

B. What is the profit-maximizing price if you sell the two fruit as a pure bundle?

C. What leads to higher profits – selling separately or offering a pure bundle? Explain how this answer relates to the correlation in consumers’ willingness to pay across apples and bananas.

D. Can you do better by mixed bundling? Explain why or why not?

E. Does your answer to part (d) change if your production cost is $3 per unit instead?

TABLE 1 : In 2013
Item Quantity Price
Bananas 100 $10 a bunch
Coconuts 50 $12 a bag
TABLE 2: In 2014
Item Quantity Price
Bananas 110 $15 a bunch
Coconuts 60 $10 a bag

An island economy produces only bananas and coconuts. Table 1 gives the quantity produced and prices in 2013 and Table 2 gives the same information for 2014.

1. Nominal GDP in 2013 is __________.

2. Nominal GDP in 2014 is __________.

3. Real GDP (in terms of 2013 prices) in 2013 is __________.

4. Real GDP (in terms of 2013 prices) in 2014 is __________.

5. The % increase in nominal GDP from 2013 to 2014 is __________.

6. The % increase in real GDP from 2013 to 2014 is ___________.

Assume that Home can produce two goods, apples and bananas. The unit labor requirement in apple production is 4, while it is 2 in banana production. Foreign’s unit labor requirement for apples is 8 and it is 2 for bananas. Assume that when these countries trade, Home specializes in apples, Foreign specializes in bananas and the world relative price of apples (PA/PB) = 2.

a. If these countries trade, which country will have a higher wage? Why is this the case?

b. Using a numerical example for prices, show how wages are derived in each country when they trade with each other.

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