PS5 - UCLA Economics 11 Fall 2009 Professor Mazzocco...

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UCLA Economics 11 – Fall 2009 Professor Mazzocco Problem Set 5 Due by November 5 before 9:00am in the box located outside room 2221E 1). A recent study estimated the demand for coffee as follows: C=I 0.45 P T 0.21 /(2+P C ), where C is the quantity of coffee demanded, I is income, P T is the price of tea, and P C is the price of coffee. Suppose that income is 30000, P T is 0.80, and P C is 1.20. a) Find the income elasticity for the demand for coffee. Is coffee an inferior or normal good? Do the results indicate that coffee is a necessity or a luxury? b) Find the own elasticity of demand for coffee. Is the demand for coffee elastic or inelastic at this price and income level? Discuss how the price elasticity varies with P C and income. c) Are coffee and tea gross substitutes or gross complements? d) Can you say whether coffee and tea are net substitutes or net complements using the information given in the exercise? 2)
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This note was uploaded on 04/19/2010 for the course ECON Econ 11 taught by Professor Mcdevitt during the Fall '07 term at UCLA.

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PS5 - UCLA Economics 11 Fall 2009 Professor Mazzocco...

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