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A local bakery store selling cheesecake increased its

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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...
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