Question

Answered with work please.

13. If a 5% decrease in the price of gas causes a 10% increase in the demand for standard sized autos, then the cross-price elasticity of demand is:

cross price elasticity of demand (CPED)

CPED=-1 * change in quantity demand of autos/-1*change in price of gas CPED=-1*10/-5*1=-2

14. If the price elasticity of demand of for gasoline is 1.3, then a 15% decrease in quantity demanded is caused by a:

price elasticity of demand (PED)

PED=-1*change in quantity demand/-1 change in price

1.3=15*-1/Dp Dp=11.54% (increase)

*15. A 10% increase in the price of 40 inch LCD televisions which have a price elasticity of demand of 1.3 will cause a:

PED=Dq/10-1 1.3=Dq/10-1 Dq=

16. A business newscast claims that the median home price of existing homes fell from $285000 to $260000. Over the same time period the quantity of these homes sold fell from 3150000 to 2950000. Using the arc elasticity formula, calculate the arc elasticity implied.

E=Q1-Q2/P1-P2 * P1+P2/Q1+Q2

Arc Elasticity (Arc Ed) =

Answer 1

13. % ∆ Price gas= - 5%

%∆ Quantity of cars = 10%

Cross elasticity of demand is calculated using the following formula

14. Ed = - 1.3

%∆ Q = - 15%

15. %∆ Price of TV = 10%

Ed = - 1.3

16. P1 = $ 285,000 , P2 = $ 260,000

Q1 = 3,150,000 and Q2 = 2,950,000

Simplifying the above eqaution we get

The equation provided by you is not correct but I must tell one thing that as per law of demand higher the price lower the demand and lower the price higher the demand. But in the question it violates law of demand because for a higher price quantity demanded is high while for a lower price quantity demanded is low. I have solved it using the given values but that is not correct because we are getting positive price elasticity of demand but it is always a negative number.

As per the question this is the value of elasticity = 0.71475

In question the two quantities are for the same time period thus it cannot be positive. Please contact if having any doubt regarding the same will discuss the issue.

Now, solving which I feel maybe correct.

Q1 = 2,950,000 and Q2= 3,150,000

The only difference between first and second method is that I have changed the quantity.

Please contact if having any query will be obliged to you for your generous support. Your help mean a lot to me, please help. Thank you.