Question

1. Short Answers

1. What would you suppose is the cross-price elasticity coefficient of the demand for ground beef with respect to the price of latex wall paint? Why? (Points: 15)

2. The demand for veterinary services in general is very inelastic, but the demand for the services of a specific vet is very elastic. Explain why. (Points: 15)

2. Short Exercises

1. For the following two points (Point A and Point B)

1. Compute the elasticity of demand coefficient. (Points: 5)
   1. Provide the correct formula
   2. Show the procedure
   3. State the correct answer, including correct sign and magnitude
2. Interpret your elasticity of demand coefficient. (Points: 5)
3. Is the demand elastic, inelastic, or unitary elastic? (Points: 4)

Point A	Point B
(Q1, P1) (2.5 units, $8.5)	(Q2, P2) (3.0 units, $8.0)

2. For the following two points (Points C and Point D)

1. Compute the elasticity of demand coefficient. (Points: 5)
   1. Provide the correct formula
   2. Show the procedure
   3. State the correct answer, including correct sign and magnitude
2. Interpret your elasticity of demand coefficient. (Points: 5)
3. Is the demand elastic, inelastic, or unitary elastic? (Points: 4)

Point C	Point D
(Q1, P1) (5.0 units, $6.0)	(Q2, P2) (6.0 units, $5.0)

3. For the following two points (Point E and Point F)

1. Compute the elasticity of supply coefficient. (Points: 5)
   1. Provide the correct formula
   2. Show the procedure
   3. State the correct answer, including correct sign and magnitude
2. Interpret your elasticity of supply coefficient. (Points: 5)
3. Is the supply elastic, inelastic, or unitary elastic? (Points: 4)

Point E	Point F
(Q1, P1) (250 units, $4.25)	(Q2, P2) (300 units, $5.00)

4. As the price of pancakes decreased from $3 to $1 during winter, the quantity demanded for maple syrup increased from 2 oz. to 3 oz.

1. Calculate the cross-price elasticity of demand for maple syrup with respect to pancakes. (Points: 5)
   1. Provide the correct formula
   2. Show the procedure
   3. State the correct answer, including correct sign and magnitude
2. Interpret your elasticity value. (Points: 5)
3. Are pancakes a substitute or complementary good? (Points: 4)

5. As the annual per capita income increased from $38,000 to $38,390, annual per capita consumption of movie tickets in the United States increased from 30 units to 42 units

1. Calculate the income elasticity of demand for movie tickets. (Points: 5)
   1. Provide the correct formula
   2. Show the procedure
   3. State the correct answer, including correct sign and magnitude
2. Interpret your elasticity value. (Points: 5)
3. Are movie tickets an income normal good or income inferior good? (Points: 4)

Answer 1

1)a) The cross price elasticity of beef and latex paint wall would be zero as these are unrelated goods. Cross price elasticity means the change in quantity of one good when the price of a related good changes. In this case, since both of them are unrelated,it would be zero.

b) The veterinary services have inelastic demand while that of a particular vet is elastic. This is because of availability of substitutes. since there are many vets available, each vet has elastic demand ie the patients can change the vet because of many substitutes. While in case of veterinary services, it is difficult to have a substitute to whole sector of veterinary and hence the demand is inelastic.

2) Midpoint elasticity is given as

Ed= {(Q2-Q1)/(Q1+Q2)/2}/{P2-P1/(P1+P2)/2}

Putting the values we get

Ed= {3-2.5/(5.5/2)}/{8-8.5/(8+8.5)/2}

=(0.5/2.75)/(-0.5/8.25)

=(-)8.25/2.75

=(-)3

So |Ed|>1, hence it is elastic demand.

(Answered first question as per policy. You can comment for doubts)