4. EID Module 1 quiz 2 solution.pptx - Economics for...

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Economics for Investment Decisions 1 Quiz 2 Solution
Question1 The demand curve for luxury mattresses is P=12000-20Q. The own- price elasticity of demand for luxury mattresses at a price point of \$8000 is: P=12000-20Q -> Q=600 -0.05 P At \$8000, Q=600- 0.05×8000=200 E=( -0.05 ) x P/Q =-0.05 x 8000/200 = -2.0 (elastic as |-2.0|>1)
Question 2 A low-income household’s weekly demand for potatoes is: Q = 12 – 0.1P(own) + 0.04P(rice) + 0.0007I If the price of potatoes is \$2, price of rice is \$1, and household income is \$3000, what is the cross-price elasticity of demand for potatoes with respect to the price of rice? Q = 12 – 0.1×2 + 0.04×1 + 0.0007×3000 = 13.94 E(cross) = 0.04 x P/Q = 0.04 x 1/13.94 = 0.00287
Question 3 If consumers eat 10 honey crisp apples when price is 2\$ per apple and 14 honey crisp apples when price is 1.8\$. What is the
price elasticity of demand and type?
Question 4 When Shaw’s, a supermarket in North
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