Question

1) If the quantity demanded of one good increases from 200 to 300 when the price of another good increases from $5 to $7, what is the Cross-Price Elasticity of Demand?

a: -.4

b: 1.21

c: -1.21

D: .33

2) If the quantity demanded decreases from 480 to 460 when the price increases from $2 to $2.10, the price elasticity of demand in absolute value is:

A: .88, B: 4.3 C: 1.14 D: 1.49

Based on your answer above, demand for the good is ( Elastic or inelastic)

Based on your answer above, the slope of the demand curve will be (flat or steep)

Based on your answer above, when the price increases total revenue will (Decrease or increase)

Answer 1

1.

Cross price elasticity = (Q2-Q1)/(P2-P1) X (P1/Q1)

Cross price elasticity = (100/2) x (5/200)

Cross price elasticity = 1.25

Thus, correct option: (b) 1.21 (approximately)

2.

Elasticity = (-20/0.1) x (2/480)

Elasticity = -0.833 or 0.83 in absolute terms

Thus, correct option: (a) 0.88 (approximately)

3.

Demand for the good is inelastic

The slope of demand curve is steep

When the price increases, total revenue will increase