What is her price elasticity of demand for food?

Requirements: DEPENDS

Assignment 5

Consider the following demand schedule:

a. Use the midpoint formula to calculate the elasticity of demand (i) when price rises from (i) $9 to $11 and (ii) when price rises from $11 to $13.

b. When price rises from $9 to $11, does expenditure rise, fall, or remain constant? What about when price rises from $11 to $13?

c. Why should you have anticipated your answers to (b) once you had answered part (a)?

2) You work at a convenience store and make note of changes to sales after the price of liquid soap unexpectedly increases by 10%. You notice that sale of shampoo goes up by 5%; and sale of lotion goes down by 2%. Calculate the cross-price elasticities, and comment on whether each product is a substitute for soap or a complement for liquid soap.

3) Nadia consumes two goods, food and clothing. The price of food is $2, the price of clothing is $5, and her income is $1,000. Nadia always spends 40 percent of her income on food regardless of the price of food, the price of clothing, or her income.

a. What is her price elasticity of demand for food?

b. What is her cross-price elasticity of demand for food with respect to the price of clothing?

c. What is her income elasticity of demand for food?

4) Suppose demand is given by QD = 6 – P.

a. Graph the demand curve.

b. If the price were $2, what is consumer surplus?

c. If the price goes up to $4, what is the new consumer surplus? This new surplus should be lower; explain why.