Assume the market demand for wheat may be written as Q = 45 - 2p + 0.3Y + 1pb, where Y refers to income and pb refers to the price of barley. Assuming that wheat and barley both sell for $1, and income is $20, calculate the price elasticity, cross price elasticity and income elasticity for wheat

1. ) Let the market demand for rye bread be given by Q = 500 + I – 250Prye + 400Pwheat, where Q is monthly demand in number of loaves, I is average monthly income in dollars, Prye is the price of a loaf of rye bread, and Pwheat is the price of a loaf of wheat bread. If I = $1,000, Prye = $2, and Pwheat = $3, calculate the following (based on 10% changes in denominators):

1. the arc price elasticity of demand for rye bread

2. the arc price elasticity of demand for wheat bread

3. the arc cross-price elasticity of demand for rye bread

You have the following information on the price elasticities of the demands for goods Y and X:

Goods Price elasticity Cross-price elasticity Income elasticity

Y -0.2 0.8 -0.8

X -0.5 0.9 -1.2

Fill out the spaces in the following statements:

Based on the price elasticity, we can say that good X is price ______

Based on the cross-price elasticity, we can say that goods X and Y are _____

Based on the income elasticity, we can say that good Y is ______

Price Elasticity, Cross-Price Elasticity, and Income Elasticity in the Market for Alcoholic Beverages

Many public policy issues are related to the consumption of alcoholic beverages. These issues include underage drinking, drunk driving, and the possible beneficial effects of red wine in lowering the risk of heart disease. In the table presented below the economists have estimated statistically the following elasticities:

Price elasticity of demand for beer -0.23

Cross-price elasticity of demand between beer and wine 0.31

Cross-price elasticity of demand between beer and spirits 0.15

Income elasticity of demand for beer -0.09

Income elasticity of demand for wine 5.03

Income elasticity of demand for spirits 1.21

What can you determine about consumer demand for the three products from this information?