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Practice Problems 2 Midterm 1 Economics 304K: Principles of Microeconomics Prof. Meg Ledyard Question 1: Suppose that you know the following data: If the price of staples is \$1 then the quantity of staples consumed is 250 and the quantity of paper clips consumed is 700. If the price of staples is \$0.50 then the quantity of staples consumed is 400 and the quantity of paper clips consumed is 460. a. What is the price elasticity of demand for staples? b. Calculate the cross price elasticity of demand of staples for paper clips. Question 4: Consider the perfectly competitive market for pecan pie. a. Suppose the income elasticity of demand for pecan pie is 10. In a well
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Unformatted text preview: labeled diagram, show what happens to the equilibrium price and quantity of pecan pie if incomes increase. (not numbers, just directions.) b. Suppose instead that the income elasticity of demand for pecan pie is -2. In a well labeled diagram, show what happens to the equilibrium price and quantity of pecan pie if incomes increase. (not numbers, just directions.) c. Now suppose that the cross price elasticity of demand of pecan pie for milk is -0.5. In a well labeled diagram, show what happens to the equilibrium price and quantity of pecan pie if the price of milk increases. (not numbers, just directions.)...
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