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elast1a - 11-2-22 —————— ——(P 2 A P 1 A 2 9...

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Additional Problem 1 : Elasticity (Answer Key) 1. Given : P A = Price of good A Q A = Quantity of good A Q B = Quantity of good B Q C = Quantity of good C Q D = Quantity of good D I = Consumer’s income P A Q A Q B Q C Q D I $10 5 10 10 10 $5,000 $8 6 10 6 12 $6,000 (a) Calculate the price elasticity of demand for good A. (Include the formula you utilized for this calculation.) Price elasticity of D is inelastic Q 2 A - Q 1 A 1 for this price change. —————— —— Ï (Q 2 A + Q 1 A ) / 2 5.5 1 9 9 E P A = ———————— = —— = —— x —— = —— = -.818 P 2 A - P 1 A -2 5.5 -2 -11 —————— —— (P 2 A + P 1 A ) / 2 9 (b) Calculate the cross elasticity of demand for good D with respect to good A. (Include formula.) Q 2 D - Q 1 D 2 Inelastic demand. —————— —— Ï (Q 2 D + Q 1 D ) / 2 11 2 9 18 E DA = ———————— = —— = —— x —— = —— = -.818 P 2 A - P 1 A -2
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