1. Anna owns the Sweet Alps Chocolate store. She charges $10 per pound for her hand made chocolate. You, the economist, have calculated the elasticity of demand for chocolate in her town to be 2.5. If she wants to increase her total revenue, what advice will you give her and why? Explain your answer.
2. If the cross elasticity of demand between peanut butter and milk is -1.11, then are peanut butter and milk substitutes or complements? Explain your answer.
3. A 10 percent increase in income brings about a 15 percent decrease in the demand for a good. What is the income elasticity of demand and is the good a normal good or an inferior good? Explain your answer.
4. If the price of a good increases by 8% and the quantity demanded decreases by 12%, what is the price elasticity of demand? Is it elastic, inelastic or unitary elastic?
5. Discount stores sell relatively elastic goods. Ceteris paribus, explain why selling at a relatively low price is profitable for them?
1. Anna owns the Sweet Alps Chocolate store. She charges $10 per pound for her hand made chocolate. You, the economist, have calculated the elasticity of demand for chocolate in her town to be 2.5. If she wants to increase her total revenue, what advice will you give her and why? Explain your answer.
2. If the cross elasticity of demand between peanut butter and milk is -1.11, then are peanut butter and milk substitutes or complements? Explain your answer.
3. A 10 percent increase in income brings about a 15 percent decrease in the demand for a good. What is the income elasticity of demand and is the good a normal good or an inferior good? Explain your answer.
4. If the price of a good increases by 8% and the quantity demanded decreases by 12%, what is the price elasticity of demand? Is it elastic, inelastic or unitary elastic?
5. Discount stores sell relatively elastic goods. Ceteris paribus, explain why selling at a relatively low price is profitable for them?
