Unformatted text preview: rice elasticity of demand for peanut butter and the price of jelly is ‐1.5; (v)
The cross price elasticity of demand for peanut butter and the price of Tofu is 2.2; and (vi)
The elasticity of demand for peanut butter is ‐0.6 Supply: (i) Salt and workers are inputs in the production of peanut butter; and (ii) Peanut butter is made with the aid of giant peanut crushing machines. A. Given this information, suppose the price of jelly increases by 20%. i.
Show what will happen to the equilibrium price and quantity of peanut butter? (10 points) ii.
What is the new price of jelly? What is the new price of peanut butter? (6 points) iii.
How will this affect the total expenditures (or total revenue) on peanut butter? Support your answer. (8 points) 5 3. The price of kumquats decreases by 60% at the same time the demand for rambutan increases by 40%. A. What is the cross price elasticity? (4 points) B. Are kumquats and rambutan compliments or substitutes? (6 points) 4. (The Price of Everything): Briefly explain what Professor Lieber means when she quotes Hayek’s line: “the curious task of economics is to demonstrate to men how little they really know about what they imagine they can design.” (10 points) [Auf Wiedersehen] 6...
View Full Document
- Fall '12
- Microeconomics, producer, c., Mulholland, Law of Demand and Law of Supply, $39.00, Professor Lieber