Mark spends all his income on pizza and salad The prices of

Mark spends all his income on pizza and salad. The prices of pizza and salad in Year 1 are $12 and $2 per unit. In Year 2, the same goods are priced at $15 and $3. Suppose that Mark\'s income is adjusted for inflation in prices. Following the law of demand, you would expect Mark to buy in Year 2 as compared to Year 1. more salads since their relative price has fallen fewer pizzas since the price of pizza has risen more salads in spite of the fact that the price per salad has risen none of the answers given are correct Calculate the elasticity of demand at prices $8, $5, $3 Round answer to three places after decimal.

Solution

First question is answered below.

Increase in price of pizza = (15-12)/12 = 25%

Increase in price of salad = (3-2)/2 = 50%

Although relative price of salad has increased more than the price of pizza, Mark will still consume more of salad because it is still cheaper than Pizza

Thus, correct option is (c) more salads in spite of the fact that the price per salad has risen