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28 Sep 2019
Let the market demand for rye bread be given by Q = 500 plus Iminus 250Prye plus 400Pwheat, where Q is monthly demand in numberof loaves, I is average monthly income in dollars, Prye is theprice of a loaf of rye bread, and Pwheat is the price of a loaf ofwheat bread. If I = $1,000, Prye = $2, and Pwheat = $3, calculatethe following (based on 10% changes in denominators):
(a) the arc price elasticity of demand for rye bread ?r;
(Hint: assume 10% change makes the price of rye bread rise from $2to $2.2. Plug $2.2 into equation, you will get Q2)
(b) the arc cross-price elasticity of demand for rye breadErw;
(Hint: now assume 10% change makes the price of wheat bread risefrom $3 to $3.3)
(c) From part (b), are rye bread and wheat bread substitute orcomplements?
Let the market demand for rye bread be given by Q = 500 plus Iminus 250Prye plus 400Pwheat, where Q is monthly demand in numberof loaves, I is average monthly income in dollars, Prye is theprice of a loaf of rye bread, and Pwheat is the price of a loaf ofwheat bread. If I = $1,000, Prye = $2, and Pwheat = $3, calculatethe following (based on 10% changes in denominators):
(a) the arc price elasticity of demand for rye bread ?r;
(Hint: assume 10% change makes the price of rye bread rise from $2to $2.2. Plug $2.2 into equation, you will get Q2)
(b) the arc cross-price elasticity of demand for rye breadErw;
(Hint: now assume 10% change makes the price of wheat bread risefrom $3 to $3.3)
(c) From part (b), are rye bread and wheat bread substitute orcomplements?
(a) the arc price elasticity of demand for rye bread ?r;
(Hint: assume 10% change makes the price of rye bread rise from $2to $2.2. Plug $2.2 into equation, you will get Q2)
(b) the arc cross-price elasticity of demand for rye breadErw;
(Hint: now assume 10% change makes the price of wheat bread risefrom $3 to $3.3)
(c) From part (b), are rye bread and wheat bread substitute orcomplements?
Mahe AlamLv10
28 Sep 2019
