ApEc 1101
Principles of Microeconomics
Spring 2014
Homework Assignment #2
Due 04. 11. 2014
Answer the following questions on separate sheets of paper or in a blue book. Make sure
your handwriting is legible, your graphs are clearly labeled, and your equations are clearly
stated.
Each question is worth 10 points.
1a. The price elasticity of demand for gasoline is -0.03. The price elasticity of demand for gasoline at Shellco station is -1.3. Explain what might account for the different elasticities. 1b. The cross-price elasticity of the demand for cell phones and DVDs is 1.4. Explain why. The cross price elasticity of demand for iPod and DVDs is -1.5. Explain why. 1c. Use the following equation for the demand for fountain pens to calculate the price elasticity of demand for fountain pens, cross-price elasticity with roller balls, and income elasticity. 1020.10RBQPIP=−++Where Qis the quantity demanded, Pis the price of a fountain pen, RBPis the price of a roller ball, and Iis income. Assume that $10P=, $100I=, and $20RBP2. Suppose John consumes both pizza and Coke. The table below shows the total utility he obtains from different combinations of the two goods:
=
.