Reference no: EM133132652

Application of elasticities

It is important to answer each of the questions presented in each exercise:

1. The quantity demanded product A increases by 8% when the price of product B increases by 16%, other variables being the same.a.) Calculates the cross elasticity of demand. Products A and B, are they complementary or substitutes? Why?

b.) By drawing a graph, show the change in the demand curve for product A as a result of the change in the price of product B.

2. Can it be possible that for a particular product the demand curve is perfectly inelastic, regardless of price? Explain your answer in detail.

3. Consider the relationship between the demand for the following products: vodka and grains.

a.) What happens to the demand for vodka when the price of grains increases?

b.) Are these products complementary or are they substitutes? Explain your answer.

4. A company increases the price of its product from $210 to $240 per unit and stocks 30,500 units of this product monthly.

a.) Is elasticity elastic, inelastic, perfectly inelastic, or unitary? Why?

b.) Indicate what could be an example of this product. Why?

5. What is the income elasticity of demand and how is it measured? Explain in your own words with an example; remember to cite the source you used.