Additional Problem #4 : Elasticity Complete each statement or answer the question in the spaces provided. (1) The price elasticity of demand for a new car model called Sputter is estimated to be equal to -.40. This means that a 1% increase in Sputter's price will result in a % (increase/decrease) in the number of Sputters demanded. Demand is therefore (elastic/unit elastic/inelastic). If the manufacturer wishes to raise total sales revenue from its Sputter model, it should (raise/lower) the price of the car. (2) The quantity of Good A increases by 10% when Good B's price increases by 15%. The cross-price elasticity of demand is . These two goods must therefore be (substitutes/complements/independent). Give an example of two goods of this type: (3) When Maria's income falls from $50,000 to $30,000, she increases purchases of Good A from 50 units a year to 100 units a year. The income elasticity of demand is therefore equal to . For Maria, Good A is (normal/neutral/inferior) b e c a u s
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This note was uploaded on 10/26/2009 for the course ECON 180-004-20 taught by Professor Bresnock during the Fall '09 term at UCLA.