Price Quantity demanded dollars per cake) (gallons of ice cream per weeko 13) Ba

Question

Price Quantity demanded dollars per cake) (gallons of ice cream per weeko 13) Based on data in the table above, use the midpoint method to determine the cross elasticity of demand for ice cream and cake. 13)_ A) The cross elasticity is -1.33. B) The cross elasticity is -0.83 C) The cross elasticity is-0.75. D) The cross elasticity is-1.75 E) The cross elasticity is -4.0 14) When two goods are related such that an increase in the price of one good decreases the quantity demanded of the other good, these goods are definitely 14) A) substitutes. B) normal goods. C) complements. D) luxury goods. E) inferior goods. 5 O 15 20 25 The figure above shows the demand curve for Starbucks latte. 15) Suppose Starbucks currently charges $3.25 per cup for its latte. If Starbucks lowers the price to $3.00 per cup, based on the demand curve in the figure above, its total revenue will because the demand for Starbucks latte is over this price range, 15) A) increase; inelastic B) decrease; elastic C) increase; unit elastic D) increase; elastic E) not change; unit elastic

Explanation / Answer

13.

C

Working note:

Cross elasticity = % change in demand of ice-cream/ % change in the price of cake

Cross elasticity = ((10-6)/(10+6)/2)/((2-4)/(2+4)/2)

Cross elasticity = -.75

14.

C

These goods are complements because when price of one good increases and quantity demanded of the same good decreases, then demand of another good also decreases.

16.

B

Here, the demand does not change with the change in price.

17.

C

Working note:

Elasticity = ((130-100)/(130+100)/2)/((8-10)/(8+10)/2)

Elasticity = -1.17 or 1.17 (-ve)

18.

A

Only first statement about substitute good is correct.

19.

B

20.

A

It is a perfectly elastic supply curve.

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