Question 1

When the Shaffers had a monthly income of $4,000, they usually ate out 8 times a month. Now that the couple makes $4,500 a month, they eat out 10 times a month. Compute the couple's income elasticity of demand using the midpoint method. Explain your answer. Is a restaurant meal a normal or inferior good to the couple?

Accepted Answer

The answer of When the Shaffers had a monthly income...

Question 2

Consider the following pairs of goods. For which of the two goods would you expect the demand to be more price elastic? Why?
a.water or diamonds
b.insulin or nasal decongestant spray
c.food in general or breakfast cereal
d.gasoline over the course of a week or gasoline over the course of a year
e.personal computers or IBM personal computers

Accepted Answer

The answer of Consider the following pairs of goods. For...

Question 3

Suppose a farmer knows that he will be able to harvest and sell 3,000 bushels of wheat. Would he prefer a market in which conditions are favorable and most farmers harvest large crops or a market in which conditions are unfavorable and many farmers harvest small crops? Why?

Accepted Answer

The answer of Suppose a farmer knows that he will...

Question 4

Recently, in Smalltown, the price of Twinkies fell from $0.80 to $0.70. As a result, the quantity demanded of Ho-Ho's decreased from 120 to 100. What would be the appropriate elasticity to compute? Using the midpoint method, compute this elasticity. What does your answer tell you?

Accepted Answer

The answer of Recently, in Smalltown, the price of Twinkies...

Question 5

Using the midpoint method, compute the elasticity of demand between points A and B. Is demand along this portion of the curve elastic or inelastic? Interpret your answer with regard to price and quantity demanded. Now compute the elasticity of demand between points B and C. Is demand along this portion of the curve elastic or inelastic?

Accepted Answer

The answer of Using the midpoint method, compute the elasticity...

Quiz 5: Elasticity and Its Application

Suppose a farmer knows that he will be able to harvest and sell 3,000 bushels of wheat. Would he prefer a market in which conditions are favorable and most farmers harvest large crops or a market in which conditions are unfavorable and many farmers harvest small crops? Why?

Recently, in Smalltown, the price of Twinkies fell from $0.80 to $0.70. As a result, the quantity demanded of Ho-Ho's decreased from 120 to 100. What would be the appropriate elasticity to compute? Using the midpoint method, compute this elasticity. What does your answer tell you?