Micro2Solutions

# A local bakery store selling cheesecake increased its

This preview shows page 1. Sign up to view the full content.

This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: selling cheesecake increased its monthly revenue from \$1,800 to \$2,200 when it raised the price of cheesecake from \$9 to \$11 per pound. What is the price elasticity of demand for cheesecake? a) b) c) d) e) 0.2 2 0 2 3 Solution: c) 0 Quantity before price increase: 1800 / 9 = 200 Quantity after price increase: 2200 / 11 = 200 Price increase did not affect the quantity demand for cheesecake is perfectly inelastic price elasticity of demand = 0. Jessica has an annual income of \$19,000 and consumes 10 pounds of bologna and 3 pounds of steak. When Jessica’s income increases to \$21,000, she starts consuming 6 pounds of bologna and 5 pounds of steak. Use this information to answer questions 15 and 16: Q15. Steak is ___ and bologna is ___. a) b) c) d) e) An inferior good; a normal good A normal good; an inferior good An inferior good; an inferior good A normal good; a normal good; A substitute good; a complementary good Page 9 of 33 ©Prep101 www.prep101.com/freestuff Solution b) A normal good; an inferior good When income increases, people increase the consumption of normal goods and decrease the consumption of inferior goods. Q16. Bologna has an incom...
View Full Document

{[ snackBarMessage ]}

Ask a homework question - tutors are online