The table below provides values for the four types of elasticities that we discussed during class.

INSTRUCTIONS TO CANDIDATES

ANSWER ALL QUESTIONS

1. The table below provides values for the four types of elasticities that we discussed during class. You will use the table to answer each part of this question.

 

Elasticity of Demand Cross-Price Elasticity Income Elasticity

Newspapers 0.1 Beef – Restaurant Meals 0.23 Restaurant Meals 1.63

Cigarettes 0.25 Beef – Eggs 0.57 Train Tickets -0.57

Eggs 0.32 Beef -- Yogurt 0.01 Mortgages 2.14

Gasoline 0.60 Beef -- Broccoli -0.28 Supply Elasticity

Beef 1.27 Coffee – Tea 0.87 Antique Furniture 0.15

Restaurant Meals 2.27 Coffee – Hot Chocolate 0.78 Hot Dogs 1.92

Yoplait Yogurt 2.56 Coffee -- Newspaper -0.65 Concert Tickets 0.64

 

a. List all products that are inferior goods

 

 

b. List all goods that have an elastic demand

 

 

c. List all good pairs that are complements

 

 

d. List all goods that have an inelastic demand

 

 

e. List all good pairs that are substitutes

 

 

f. When the price for good X increased by 2% the quantity demanded changed by 1.2%. What is good X?

 

 

 

g. When the price for good Y increased by 5% the quantity demanded for good X changed by 4.35%. What is good Y and X?

 

2. (10 points) Assume the original supply and demand for a good is given by the following 2 equations.

𝑄𝑑 = 50 − 5𝑃

𝑄𝑠 = 10 + 5𝑃

Where 𝑃 = 𝑝𝑟𝑖𝑐𝑒 𝑄𝑑 = 𝑞𝑢𝑎𝑛𝑡𝑖𝑡𝑦 𝑑𝑒𝑚𝑎𝑛𝑑𝑒𝑑 𝑄𝑠 = 𝑞𝑢𝑎𝑛𝑡𝑖𝑡𝑦 𝑠𝑢𝑝𝑝𝑙𝑖𝑒𝑑

 

a. A new advertising campaign for the product increases your preference for the product and makes you willing to pay $5 more at every quantity demanded. Use the space below to graph

i. the original supply and demand curves

ii. the shift in supply or demand curve if one occurred

iii. the original equilibrium point

iv. the new equilibrium point

 

 

 

 

 

 

 

 

b. Is the supply for the product elastic or inelastic? Support your claim by calculating the elasticity of supply.

 

 

c. New technology makes it cheaper to supply the product by $5 at every level of quantity supplied. Use the space below to graph

i. the original supply and demand curves

ii. the shift in supply or demand curve if one occurred

iii. the original equilibrium point

iv. the new equilibrium point

 

Attachments:

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