with respect to the price of tea is22 20820 05 D05 elasticit

with respect to the price of tea is22) )-20(8).20 0.5 D)-05 elasticity of demand between dress shirts and We would expect the cross 8) negative, indicating substitute goods positive, indicating complementary goods D) pasitive, indicating secondary goods 24) A negative income elasticity of demand coefficient indicates thet is an inferior good. B) is a complementary good. is a substitute good. D) follows the law of demand Answer the next questi on based on information in the following table. Product Percentage Change in Income Percentage Change in Quantity Demanded +6 Which product is most responsive to a change in income? 25) A)product w B) product xaproduct y D) product Z Suppose the price elasticity of supply for crude oil is 2.5. How much would price have to rise to increase preduction by %2 26) A)8% B) 45% C) 20% t) 12 5% Use the following graph to answer the question below. 12 Quantity

Solution

23) Dress shirts and ties are complementary goods that is the two things are used together. The cross price elasticity measures the percentage change in quantity demanded for one good in response to a percentage change in price of another good. So when the price ties increase then the quantity demanded for dress shirts is likely to fall. Therefore the cross price elasticity for complementary goods is negative.

25) To measure the responsiveness to a change in income the formula is given as: percentage change in quantity demanded/percentage change in income. For products:

W = -1/-1 = 1

X = +3/+6 = 0.5

Y = +1/-1 = -1

Z = +8/+4 = 2

Therefore Product Z is most responsive to a change in income.

26) The formula for price elasticity of supply is :

Percentage change in quantity supplied/Percentage change in price.

2.5 = 20/Percentage change in price

Percentage change in price = 20/2.5

Percentage change in price = 8%

Therefore price should increase by 8%.

27) Price elasticity of supply = Percentage change in quantity supplied/ Percentage change in price.

= (Q₂-Q₁)/Q₁÷(P₂-P₁)/P₁

_{= (12-6)/6÷(4-2)/2}

_{= (6/6)÷(2/2)}

_{= 1÷1 = 1}

_{Therefore price elasticity of supply is 1.}

28) The price elasticity of supply measures how responsive quantity supplied of X is to changes in the price of X.

29) The midpoint formula is given as: Percentage change in quantity supplied/ Percentage change in price.

Percentage change in quantity supplied = [(Q₂-Q₁)/(Q₂+Q₁)÷2]×100

Percentage change in price = [(P₂-P₁)/(P₂+P₁)÷2]×100

Percentage change in quantity supplied = [(12-6)/(12+6)÷2]×100

Percentage change in price = [(4-2)/(4+2)÷2]×100

Percentage change in quantity supplied = [6/(18)÷2]×100

Percentage change in price = [2/(6)÷2]×100

Percentage change in quantity supplied = [6/9]×100

Percentage change in price = [2/3]×100

Applying the formula we get = (6/9)×(3/2) = 1

Therefore by the midpoint formula, the price elasticity of supply is 1.

30) For the price elasticity of supply be unitary, the percentage change in quantity supplied must be equal to the percentage change in price. In part B the price of X rises by 8% and so the quantity supplied.