4. The own price elasticity ofNazmul\'s demand for bagels is --2.0, the income e
ID: 1141388 • Letter: 4
Question
4. The own price elasticity ofNazmul's demand for bagels is --2.0, the income elasticity of demand for bagels is EB-0.5, the cross price elasticity of demand between donuts and bagels is EDB 0.75, and the cross price elasticity of demand between cream cheese and bagels is EcB0.6. Show your work as you answer the questions below! ka. If the price of donuts rises by 20%, you anticipate that the quantity of bagels demanded by Nazrul will change by ?% 4b. If the price of bagels rises by 20%, you anticipate that the quantity of bagels demanded by Nazmul will change by ?% His total expenditure on bagels will change by ?% 4c. If the price of bagels falls by 10%, you anticipate that the quantity of bagels demanded by Nazmul will change by ?% His total expenditure on bagels will change by ?% 4d. If the price of cream cheese rises by 30%, you anticipate that the quantity of bagels demanded by Nazrul will change by ?% 4e. IfNazmul's income falls by 30%, you anticipate that the quantity of bagels demanded by Nazrul will change by ?% 4f. IfNazmul's income rises by 20%, you anticipate that the quantity of bagels demanded by Nazmul will change by 1%Explanation / Answer
4.a
EDB= 0.75 means that due to a 1% increase in price of donuts, the demand for bagels will increase by 0.75%
EDB = % change in qty demanded of bagels/% change in price of donuts
0.75 = % change in qty demanded of bagels/20
% change in qty demanded of bagels = 20*0.75 = 15%
4b.
Own price elasticity Ed =% change in qty of bagels/% change in price of bagels
-2 = % change in qty of bagels/20
% change in qty of bagels = 20*(-2) = -40% which means that the quantity demanded will fall by 40 percent.
P
Q
TE
Change in TE
100
100
10000
120
140
16800
68
TE will increase by 68%
4c
Own price elasticity Ed =% change in qty of bagels/% change in price of bagels
-2 = % change in qty of bagels/-10
% change in qty of bagels = -10*(-2) = 20% which means that the quantity demanded will rise by 20 percent.
P
Q
TE
Change in TE
100
100
10000
90
120
10800
8
TE will increase by 8%
4d.
Cross elasticity for cheese and bagels
ECB= -0.6 means that due to a 1% increase in price of cheese, the demand for bagels will fall by 0.6%
EDB = % change in qty demanded of bagels/% change in price of cheese
-0.6 = % change in qty demanded of bagels/30
% change in qty demanded of bagels = 30*(-0.6) = -18% demand for bagels will fall by 18 percent
4e
Income Ed = 0.5
0.5 = % change in qty demanded of bagels/-30
% change in qty demanded of bagels = -30*0.5 = -15%
Fall in demand of bagels by 15 percent
4f
Income Ed = 0.5
0.5 = % change in qty demanded of bagels/20
% change in qty demanded of bagels = 20*0.5 = 10%
Rise in demand of bagels by 10 percent
P
Q
TE
Change in TE
100
100
10000
120
140
16800
68
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