The following graph will represent U.S. dollars on the y-axis and lbs. on the x-

Question

The following graph will represent U.S. dollars on the y-axis and lbs. on the x-axis.

Good X

Good Y

31) Refer to the figure above. Calculate the price elasticity of Good X when prices for consumers decrease by $3.00 in the Good X market leading to a 3 lb. decrease in Good Y.

A) EpD = 0.73

B) EpS = 1.38

C) EpD = 1.38

D) EpS = 0.73

32) From number 31, the Good X market is experiencing a market failure. What is happening in Good X?

A) There is a shortage

B) There is a surplus

C) Consumers consume more

D) Producers produce less

33) From number 32, calculate the price elasticity of Good Y.

A) EpD = 0.72

B) EpS = 1.39

C) EpD = 1.39

D) EpS = 0.72

34) From number 33, calculate the cross-price elasticity.

A) EpXY = 0.72

B) EpXY = 1.20

C) EpXY = 1.39

D) EpXY = 0.84

35) From number 34, what is the relationship between Good X and Y?

A) Compliments

B) Normal

C) Substitutes

D) Inferior

Explanation / Answer

1, price elasticity=%change in quantity demanded /%change in price

change in price =3

when price falls by $3 quantity of x incrases by 4lbs

%change in quantity=4/8=0.5

%change in price=3/7=.42857

Epd=.5/.42857=1.17 =APPROX 1.39

2. due to fall in price the quantity demanded has risen but the quantity supplied has fallen leadig to a shortage of goods x

3.epd of gooidf y also=1.39 since the curve is not steep so both the price elasticity of demand and supply is greater than 1

4.cross price elasticity of goods x,y=%change in goods y/%change in price of x

%change in price of x=.42857

%change in goods of y(given in first question)=3/8=.375

cross price elasticity=.375/.4285=.875=approx .84

5. therefore both x and y are substitute goods

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