elast2a - 2.38 E PC,SD = 2.38 Elastic substitutes A 1...

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1 Additional Problem 2 : Elasticity (Answer Key) For each of the elasticity cases given below, verbally explain what the elasticity coefficient means, and offer an interpretation of the elasticity coefficient. (a) The income elasticity of movies is 3.41. E I = 3.41 Elastic; superior / normal good. A 1% increase in I Î 3.41% increase in Q D + vice versa. (b) The price elasticity of tobacco is -0.61. E P = -0.61 Inelastic; demand A 1% increase in P Î .61% decrease in Q D + vice versa. (c) The cross price elasticity of popcorn with respect to the price of soft drinks is
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Unformatted text preview: 2.38. E PC,SD = 2.38 Elastic; substitutes A 1% increase in P Soft Drinks Î 2.38% increase in Q D Popcorn + vice versa. (d) The price elasticity of rail service is 0.89. E P = 0.89 Inelastic; supply A 1% increase in P Rail Î 0.89% increase in Q S Rail + vice versa. (e) The income elasticity of dental services is 1.00. E I = 1.00 Unit elastic; superior / normal A 1% increase I Î 1% increase in Q D dental service + vice versa....
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