Calculate alexs income elasticity of demand

Reference no: EM13106835

Question

The demand schedule for computer chips is in the table.

Price (dollars per chip)	Quantity demanded (millions of chips per year)
200	50
250	45
300	40
350	35
400	30

(a) What happens to total revenue if the price falls from $400 to $350 a chip and from $350 to $300 a chip?

(b) At an average price of $350, is the demand for chips elastic, inelastic, or unit elastic? Use the total revenue test to answer this question.

When Alex's income was $3,000, he bought 4 bagels and 12 donuts a month. Now his income is $5,000 and he buys 8 bagels and 6 donuts a month.

(d) Calculate Alex's income elasticity of demand for bagels.

(e) Calculate Alex's income elasticity of demand for donuts. Suppose a drought cuts the quantity of wheat grown by 2 per cent.

(f) If the price elasticity of demand for wheat is 0.5, by how much will the price of wheat rise?

(g) If pasta makers estimate that this change in the price of wheat will increase the price of pasta by 25 per cent and decrease the quantity demanded of pasta by 8 per cent, what is the pasta makers' estimate of the price elasticity of demand for pasta?

(h) If pasta sauce makers estimate that, with the change in the price of pasta, the quantity of pasta sauce demanded will decrease by 5 per cent, what is the pasta sauce makers' estimate of the cross elasticity of demand for pasta sauce with respect to the price of pasta?

Reference no: EM13106835

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