. When Sweat Sox Sports lowered the price of basketball shoes from S120 to $100
ID: 1152296 • Letter: #
Question
. When Sweat Sox Sports lowered the price of basketball shoes from S120 to $100 per pair, sales of basketballs increased from 30 a week to 40 a week. Calculate and interpret this cross price elasticity. s. Consider the following market supply and demand: Qs = 8P-48 and QD-160-SP a) Find the equilibrium price and quantity for this market. b) Find the dollar values of the consumer and producer surpluses for this market. ) Suppose the government sets a price ceiling of S12 per unit. Determine the new amounts of consumer and producer surplus d) Carefully draw a diagram to illustrate this market with the price ceiling.
Explanation / Answer
4. Cross price elasticity of demand = % change in quantity demanded of basketball/ % change in price of basketball shoes
= (P1 + P2)/(Q1 + Q2) x (Q2 - Q1)/(P2 - P1)
P1 = 120, P2 = 100, Q1 = 30, Q2 = 40
Cross Price Ed = 220/70 x 10/(-20) = - 2200/1400 = - 1.57
Basketball and basketball shoes are complementary goods as cross price Ed is negative.
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