Homework: ASSESS Chapter 5 Chapter Problems and Instructor A Score: 0 of 1 pt 16

Question

Homework: ASSESS Chapter 5 Chapter Problems and Instructor A Score: 0 of 1 pt 16 of 17 (17 complete) Instructor Assignable5 Drought cuts the quantity of wheat grown by 2 percent The price elasticity of demand for wheat is 0.5 Calculate the answers below >Answer to 1 decimal place >>>If your answer is negative, include a minus sign. If your answer is positive, do not include a plus sign. The price of wheat will rise by 4 percent. Pasta makers estimate that this change in the price of wheat will increase the price of pasta by 6 percent, and decrease the quantity demanded of pasta by 3 percent. The pasta makers' estimate of the price elasticity of demand for pasta is 0.5 Pasta sauce makers estimate that, with the change in the price of pasta that the quantity of pasta sauce demanded will decrease by 3 percent The pasta sauce makers' estimate of the cross elasticity of demand for pasta sauce with respect to the price of pasta is

Explanation / Answer

Percentage change in quantity of wheat = 2%

Price elasticity of demand for wheat = 0.5

Calculate the percentage change in price of wheat -

Price elasticity of demand for wheat = % change in quantity of wheat/% change in price of wheat

0.5 = 2/% change in price of wheat

% change in price of wheat = 2/0.5 = 4%

So,

The price of wheat will rise by 4 percent.

% change in price of pasta = 6%

% change in quantity demanded of pasta = -3%

Calculate the price elasticity of demand for pasta -

Price elasticity of demand = % change in quantity demanded of pasta/% change in price of pasta

Price elasticity of demand =-3/6 = -0.5

The pasta makers' estimate of the price elasticity of demand for pasta is -0.5

% change in price of pasta = 6%

% change in quantity demanded of pasta sauce = -3%

Calculate the cross-price elasticity of demand -

Cross-price elasticity = % change in quantity demanded of pasta sauce/% change in price of pasta

Cross-price elasticity = -3/6

Cross-price elasticity = -0.5

The pasta sauce makers' estimate of the cross elasticity of demand for pasta sauce with respect to the price of pasta is -0.5.

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