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Economics: Supply and Demand and Cross Elasticity

If bus travel is an inferior good, then its income elasticity of demand will be negative. 10. When income changes, the quantity demanded for a commodity remains the same, the income elasticity of demand for the good is negative one. Economics: Supply and Demand and Cross Elasticity By Bonham 1 1 . The cross elasticity of demand for product X with respect to the price of product Y is 1. 00. It can be concluded that X and Y are complementary products. 12.

A positive income elasticity of demand coefficient indicates that a product is an inferior good. 13. A vertical supply curve may be described as perfectly price inelastic. 14. A supply curve that has a coefficient equal to zero is a vertical. 15. The main determinant of the price elasticity of supply off product is the length of time sellers have to adjust to a change in price. 16. The supply curve for cars will be more elastic the longer the time interval considered. SECTION B 1. Answer ‘Questions’ exercise 3 of the textbook page 126. What are the major determinants of price elasticity of demand?

Use those determinants and your own seasoning in Judging whether demand for each of

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the following products is probably elastic or inelastic: (a) bottled water, (b) toothpaste, (c) Crest toothpaste, (d) tomato sauce, (e) diamond bracelets, (f) Microsoft’s Windows operating system. 2. Answer ‘Questions’ exercise 5 of the textbook page 126. Calculate total-revenue data from the demand schedule in question 2. Graph total revenue below your demand curve. Generalize about the relationship between price elasticity and total revenue. 3. Ammonia Spa & Resort tried to improve revenue by reducing its entrance ticket room $40 to $35 per head.

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