Section Question Week 3 Answer Key

Section Question Week 3 Answer Key - Questions for...

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Questions for Economics 1 1. Suppose a 18% fall in the price of strawberries increases the quantity of strawberries demanded by 24% and decreases the quantity of chocolate demanded by 12%. a. What is the price elasticity of demand for strawberries? Interpret your calculation in words. At the current price level, is the demand for strawberries elastic or inelastic? b. Are strawberries and chocolate complements or substitutes. Briefly explain your reasoning. a. The elasticity of demand for strawberries is |.24/-.18|=1.33. A 1 percent increase in the price of strawberries leads to a 1.33 percent decrease in the quantity of strawberries demanded. Equivalently, a 1 percent decrease in the price of strawberries leads to a 1.33 percent increase in the quantity of strawberries demanded. The demand for strawberries is elastic. b. It suggests that strawberries and chocolate are substitutes. As the price of strawberries decreases, people buy more strawberries and less chocolate. 2. The demand for Australian wool is given by D A =5,000-2P A . The demand for New Zealand wool is given by D NZ =10,000-4P
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Section Question Week 3 Answer Key - Questions for...

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