What are the compensated price elasticities in this problem

Reference no: EM131206132

Suppose that a person regards ham and cheese as pure complements-he or she will always use one slice of ham in combination with one slice of cheese to make a ham and cheese sandwich. Suppose also that ham and cheese are the only goods that this person buys and that bread is free.

a. If the price of ham is equal to the price of cheese, show that the own-price elasticity of demand for ham is -0.5 and that the cross-price elasticity of demand for ham with respect to the price of cheese is also -0.5.

b. Explain why the results from part (a) reflect only income effects, not substitution effects. What are the compensated price elasticities in this problem?

c. Use the results from part (b) to show how your answers to part (a) would change if a slice of ham cost twice the price of a slice of cheese.

d. Explain how this problem could be solved intuitively by assuming this person consumes only one good-a ham-and-cheese sandwich.

Reference no: EM131206132

Questions Cloud

Calculate the net present value of the new equipment : a) What is the per year cash flow that should be used to calculate the Net Present Value of the new equipment? b) If the appropriate Opportunity Cost of Capital is 12%, should Quick Computing adopt this project?

Review resources related to the use of a theoretical lens : Review the Learning Resources related to the use of a theoretical lens to guide the examination of a research problem in qualitative research.

Whether information gained from this week : Discuss whether you invest in mutual funds. If you do, discuss strategies you currently use and whether information gained from this week's readings will change your strategy. If you do not, discuss the reasons you do not, as well as the strategie..

Determine current i necessary to establish indicated flux : For the series magnetic circuit of given figure, determine the current I necessary to establish the indicated flux.

What are the compensated price elasticities in this problem : Explain how this problem could be solved intuitively by assuming this person consumes only one good-a ham-and-cheese sandwich.

Immunize a big chunk of her bond portfolio : Grace has been playing with the idea of trying to immunize a big chunk of her bond portfolio. She'd like to cash out this part of her portfolio in seven years and use the proceeds to buy a vacation home in her home state of Oregon. To do this, she..

Calculate the convexity : A $1000 bond that pays annual coupons at 6% redeems at par in exactly 4 years from now. Calculate the Convexity, if the yield to maturity is currently 6%.

Find the profit-maximizing output and price : Calculate the price elasticity of demand at the monopolist's profit-maximizingprice. Also calculate the marginal cost at the monopolist's profit-maximizingoutput. Verify that the IEPR holds.

The gauss-markov conditions are strictly required : Which assumptions are needed to make b an unbiased estimator for β - Explain how a confidence interval for β2 can be constructed. Which additional assumptions are needed?

User Account

All Pages