ApEc 1101
Principles of Microeconomics
Fall 2017
Homework Assignment #2
Due 11. 10. 17
Answer the following questions on separate sheets of paper or in a blue book. Make sure
your handwriting is legible, your graphs are clearly labeled, and your equations are clearly
stated.
Each question is worth 10 points.
1a. The price elasticity of demand for gasoline is -0.03. The price elasticity of demand for
gasoline at Shellco station is -1.3. Explain what might account for the different elasticities.
1b. The cross-price elasticity of the demand for cell phones and DVDs is 1.4. Explain why. The
cross price elasticity of demand for iPod and DVDs is -1.5. Explain why.
1c. Use the following equation for the demand for fountain pens to calculate the price elasticity
of demand for fountain pens, cross-price elasticity with roller balls, and income elasticity.
10
2
0.10
RB
Q
P
I
P
=
−
+
+
Where
Q
is the quantity demanded,
P
is the price of a fountain pen,
P
RB
is the price of a roller
ball, and
I
is income. Assume that
P
=
$10,
I
=
$100, and
P
RB
=
$20.