Question

In: Economics

4. When the price of home heating oil increases by 20%, the quantity demanded of home...

4. When the price of home heating oil increases by 20%, the quantity demanded of home heating oil decreases by 2% and the demand for wool sweaters increases by 10%.

I) Calculate the elasticity of demand for home heating oil.

II) Is the demand for home heating oil elastic or inelastic? Why?

III) If the price of a wool sweater did not change, calculate the cross elasticity of demand for wool sweaters with respect to the price of home heating oil.

[Hint: Good X is wool sweaters, and Good Y is home heating oil.]

IV) Are home heating oil and wool sweaters substitutes or complements? Why?

Expert Solution

Answer to the question no. 1 and 2:

Using the following formula we can find the price elasticity of demand:

Price elasctity of demand of home heating oil (Good Y)= - (Percentage change in the quantity demanded) / (Percentage change in the price) = - (2%) / (20%)= - 0.1

The Price elaticity of demand for home heating oil is 0.1, which is less than 1. This signifies that the demand for home heating oil is inelastic.

Answer to the question no. 3 and 4:

Using the following formula we can find the cross elasticity of demand:

Cross elasctity of demand between X and Y= (Percentage change in the quantity demanded of X) / (Percentage change in the price of Y) = (10%) / (20%) = 0.5

The cross elasticity of demand between home heating oil and wool sweaters is 0.5. This implies that the wool sweater is a substitute to the home heating oil. Because, with a increase in the price of the home heating oil, the demand for the woolen sweater increases. Given the value of cross elasticity less than 1, we can infer that the goods are not perfect subtitutes, but they are substitutes.

Hope, I solved your query. Give good feedback.

Comment, I'll get back to you ASAP.

Stay safe. Thank you.

Rahul Sunny answered 2 years ago

When the price of fresh fish increases 10%, quantity demanded is unchanged. The price elasticity of...

When the price of fresh fish increases 10%, quantity demanded is unchanged. The price elasticity of demand for fresh fish is Your answer: perfectly inelastic b perfectly elastic c inelastic d unitary elastic

1. Assume the price of Super Bowl Tickets increases by 20% and the quantity demanded changes...

1. Assume the price of Super Bowl Tickets increases by 20% and the quantity demanded changes by 2%. a. What is the price elasticity of demand for Super Bowl Tickets? b. Is it elastic, inelastic, or unit elastic? 2. When the price of Lays Potato chips decreases by 5%, the quantity demanded for them changes by 15%. a. What is the price elasticity of demand for Lays Potato Chips? b. Is it elastic, inelastic, or unit elastic? 3. Assume demand...

When the price is $2, the quantity demanded is 10. When the price rises to $8, the quantity demanded falls to 2.

When the price is $2, the quantity demanded is 10. When the price rises to $8, the quantity demanded falls to 2. What is the value of the elasticity of demand? Is it elastic or inelastic?

An increase in the price of ground beef - A. increases the quantity demanded of ground...

An increase in the price of ground beef - A. increases the quantity demanded of ground beef. B. decreases the demand for ground beef. C. increases the demand for chicken, a substitute for ground beef. I believe that the correct answer is B, but I need to write a big explanation for why its is correct.

f. If a 2 percent decrease in the price of strawberries increases the quantity demanded of...

f. If a 2 percent decrease in the price of strawberries increases the quantity demanded of strawberries by 6 percent and increases the quantity of whipped cream demanded by 5 percent, calculate: i. Price elasticity of demand for strawberries. (1 mark for correct calculation, I mark for interpretation). 6% ------=3 Price elasticity of demand for strawberries is relatively elastic. -2% ii. Cross elasticity of demand for whipping cream with respect to the price of strawberries. (1 mark for correct calculation,...

According to the law of demand, if price increases, quantity demanded of a good or service...

According to the law of demand, if price increases, quantity demanded of a good or service will decrease or vice versa. Price elasticity of demand tells us how much quantity demanded will decrease when price increases or how much quantity demanded will increase if price decreases.On the other hand, according to the law of supply, if the price increases, quantity supplied of a good or service will increase. Similarly, if price decreases, quantity supplied will decrease. The degree of sensitivity...

1. The quantity demanded of a product generally __________(increases/decreases) as the price of the product...

1. The quantity demanded of a product generally __________ (increases/decreases) as the price of the product falls, ceteris paribus.2. The supply curve depicts the relationship between the __________ and the __________.3. From the following list, choose the variables that are held fixed when drawing a market supply curve:•The price of the product •Wages paid to workers •The price of materials used in production •Taxes paid by producers •the quantity of the product purchased

1. At a price of $4, quantity demanded is 100; and at a price of $6,...

1. At a price of $4, quantity demanded is 100; and at a price of $6, quantity demanded is 120. Using the midpoint formula, the price elasticity of demand is ________ and demand is ________. A) 0.1; inelastic B) 0.45; inelastic C) -2.2; elastic D) -10; elastic 2. In economics, scarcity means that A) A shortage of a particular good will cause the price to fall. B) A production possibilities curve cannot accurately represent the trade-off between two goods. C) Society's...

Compute the price elasticity of demand if price increases from $10 to $12 and quantity demanded...

Compute the price elasticity of demand if price increases from $10 to $12 and quantity demanded falls from 600 to 400. Use the value obtained and a specific example to determine whether price must be increased or decreased to increase total revenue. Explain why. Note: Explain only how to increase total revenue, not decrease it.

1) Suppose the price of a good increases 5%, and the quantity demanded falls 8%. The...

1) Suppose the price of a good increases 5%, and the quantity demanded falls 8%. The ----- of this good is -----. supply, unit elastic demand, perfectly elastic demand, inelastic demand, elasti 2) Suppose that when the price of a good increases from $120 to $132 per unit, the quantity demanded falls from 33 to 30 units. Using the midpoint method calculate price elasticity demand. -1 -1.25 3.0 -0.1 3) Along a straight-line demand curve, demand at higher prices is...