Reference no: EM133065676

Application of elasticities

1. If the price of milk increases by 20% and the quantity of demand for milk decreases by 4%, answer:

a. What's the price elasticity of demand. Is the demand elastic, inelastic, or unit? Explain.

b. Will this product have an easy or hard-to-find substitute? Why?

2. The quantity demanded by product A increases 8% when the price of product B increases 16% and the other variables remain the same.

a. Calculate 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.

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

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

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

b. These products, are they complementary or are they substitutes? Explain your answer.

5. A company increases the price of its product from $ 210 to $ 240 per unit and keeps 30,500 units of this product in stock each month.

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

b. Please indicate which could be an example of this product. Why?

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