as Economists prefer to measure the change in one variable caused by a change in
ID: 1136183 • Letter: A
Question
as Economists prefer to measure the change in one variable caused by a change in another variable using a unitless measure called the elasticity. Recall that the definition of the elasticity of demand is the percentage change in quantity demanded divided by the percentage change in price. 1) The graph shows Jeff's demand for coffee. Use the midpoint formula to calculate that price elasticity of demand when the price changes from $S to $4, $0 to $1, and $3 to $2. Is the demand curve elastic, inelastic, or does it change? Quantity Suppose that you managed a coffee store and currently priced your coffee at $4 per cup. If you increased the price, would revenue increase, decrease, or stay the same? What if you were selling coffee for $2 a cup? $1? 2) Suppose that the cross-price elasticity of demand for coffee with respect to milk were negative, how would an increase in the price of milk affect the demand for coffee? 3)Explanation / Answer
2) when price is 4, demand is 1 and total revenue=4*1=4 and here demand is highly elastic. Thus increasing the price will decrease the revenue.
When price=1 demand is inelastic and increasing price will increase the revenue
When price=2 demand is inelastic and thus increasing the price will increase the revenue
3)when cross price elasticity is negative it means both goods are complement. Increase in price of milk will decrease the demand of coffee
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