EBK INTERMEDIATE MICROECONOMICS AND ITS
12th Edition
ISBN: 9781305176386
Author: Snyder
Publisher: YUZU
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Chapter 3.10, Problem 1TTA
To determine
To provide an intuitive reason for the relationship between the welfare gain triangle and slope of the
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Income effects depend on the income elasticity of demand for each good that you buy. If one of the goods you buy has a negative income elasticity, that is, it is an inferior good, what must be true of the income elasticity of the other good you buy?
Give a real-world example
. Economists often say that goods tend to have more elastic demand when they have lots of close
χδ
= α + (1 - a)
substitutes. Use the CES utility function U(x, y)
to show that the own-price
elasticity of demand for good X gets larger (in absolute value) as the elasticity of substitution gets
larger.
Frank consumes only coffee. And his demand function given by Q = 12 − 2P where P is the price of coffee. What is the price of coffee when Frank has a unit elastic demand for coffee, that is, price elasticity of demand is equal to 1?
Chapter 3 Solutions
EBK INTERMEDIATE MICROECONOMICS AND ITS
Ch. 3.2 - Prob. 1MQCh. 3.2 - Prob. 2MQCh. 3.3 - Prob. 1TTACh. 3.3 - Prob. 2TTACh. 3.3 - Prob. 2MQCh. 3.4 - Prob. 1TTACh. 3.4 - Prob. 2TTACh. 3.5 - Prob. 1MQCh. 3.5 - Prob. 2MQCh. 3.7 - Prob. 1MQ
Ch. 3.7 - Prob. 2MQCh. 3.9 - Prob. 1MQCh. 3.9 - Prob. 2MQCh. 3.10 - Prob. 1TTACh. 3.10 - Prob. 2TTACh. 3.11 - Prob. 1MQCh. 3.11 - Prob. 2MQCh. 3.12 - Prob. 1TTACh. 3.12 - Prob. 2TTACh. 3.12 - Prob. 1MQCh. 3.12 - Prob. 2MQCh. 3.12 - Prob. 1.1TTACh. 3.12 - Prob. 2.1TTACh. 3.14 - Prob. 1MQCh. 3.14 - Prob. 2MQCh. 3.14 - Prob. 1TTACh. 3.14 - Prob. 2TTACh. 3.15 - Prob. 1MQCh. 3.15 - Prob. 2MQCh. 3 - Prob. 1RQCh. 3 - Prob. 2RQCh. 3 - Prob. 3RQCh. 3 - Prob. 5RQCh. 3 - Prob. 6RQCh. 3 - Prob. 7RQCh. 3 - Prob. 8RQCh. 3 - Prob. 9RQCh. 3 - Prob. 10RQCh. 3 - Prob. 3.1PCh. 3 - Prob. 3.2PCh. 3 - Prob. 3.3PCh. 3 - Prob. 3.4PCh. 3 - Prob. 3.5PCh. 3 - Prob. 3.6PCh. 3 - Prob. 3.7PCh. 3 - Prob. 3.8PCh. 3 - Prob. 3.9PCh. 3 - Prob. 3.10P
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- Recent research confirms that the demand for cigarettes is not only inelastic, but it also indicates that smokers with incomes in the lower half of all incomes respond to a given price increase by reducing their purchases by amounts that are more than four times as large as the purchase reductions made by smokers in the upper half of all incomes. How can the income and substitution effects of a price change help explain this finding?arrow_forwardIncome Elasticity. Suppose the price of a pastry cake is $4. When Maxwell’s income was $2000 per month, his monthly demand for pastry cakes was Q = 16 – 2P. When Maxwell got a pay raise and began to earn $4000 per month, his demand shifted to Q = 40 – 2P. Given this information, find Maxwell’s income elasticity for pastry cakes. Hint: You’ll first have to find the two quantities.arrow_forwardRecent research confirms that the demand for cigarettes is not only price inelastic, but it also indicates smokers with incomes in the lower half of all incomes respond to a given price increase by reducing their purchases by amounts that are more than four times as large as the purchase reductions made by smokers in the upper half of all incomes. How can the income and substitution effects of a price change help explain this?arrow_forward
- Ravi's utility function for various combinations of X and Y satisfy all the axioms of choice. Given his budget constraint, it has also been observed that the cross-price elasticity of demand between X and Y is zero as the price of X falls. Given this scenario, comment with an appropriate diagram, what kind of commodity is Y?arrow_forwardThis question will let you examine/explore a more interesting utility function than the simple example discussed in class as there will be both cross-price elasticity and an inferior good. Suppose you are told a consumer has the following utility function: U(qx, qz) = qx +√(qx + qz)You should assume income is Y , the price of good x is Px, and the price of good z is Pz. Question:What is the Marshallian demand for goods x and z? I.e. find (qx, qz)for both interior solutions and corner solutions. Note: the outcome is “ugly”for the interior section and both corner should include constraints, i.e. limitsusing Y relative to f(Px, Pz).arrow_forwardWhat is the sum of the own price elasticity of demand for X, the cross price elasticities, and the income elasticity of demand for X? Does this hold only for the given type of utility function or all well behaved utility functions? What does this mean?arrow_forward
- Suppose if the price of a good is $12, the quantity demanded is 50 units; when the price is $10, the quantity demanded is 100 units. Use the midpoint approach to compute the price elasticity of demand. Is demand at this point relatively responsive or relatively unresponsive to price changes?arrow_forwardSuppose the income elasticity of demand for food is 0.45 and the price elasticity of demand is 1.00. Suppose also that Felicia spends $10,000 a year on food, the price of food is $2, and that her income is $ 25,000. If a sales tax on food caused the price of food to increase to $2.50, what would happen to her consumption of food? Because a large price change is involved, use the arc elasticity to measure the price elasticity of demand rather than a point elasticity. Felicia's consumption of food would decrease by units. ( Enter your response rounded to two decimal places.) Suppose that Felicia gets a tax rebate of $2,500 to ease the effect of the sales tax. What would her consumption of food be now? (Again, use an arc income elasticity to answer this question instead of a point income elasticity.) Felicia's consumption of food would now be 4,175.18 units. (Enter your response rounded to two decimal places.) Is she better or worse off when given a rebate equal to the sales tax payments?…arrow_forwardIn the following questions, give all your answers to two decimals. Patrice works as an economist for the Bureau of Labor Statistics (BLS). Her current project is to estimate the effect of changes in income, prices of related goods, and the price of potatoes on the demand for beef. Patrice has the following data: Price elasticity of demand for beef -0.80 Income elasticity of demand for beef + 1.40 Cross-price elasticity between beef and chicken +1.20 Cross-price elasticity between beef and potatoes -0.50arrow_forward
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