Answer each question concisely but with detail, including calculations. Come to
ID: 1224654 • Letter: A
Question
Answer each question concisely but with detail, including calculations. Come to the point and be precise. Do not restate definitions. The use of generalities will raise suspicion about how firm your grasp is of a given topic. Use only the information given in a question to answer that question; assume ceteris paribus unless otherwise specified.
Answer all questions correctly.
1. Suppose that the price of gasoline at a particular station two months ago was $2.80 per gallon (keep it simple—assume one grade of gas). The past month, the price of gas was $3.10 per gallon. Assuming 20,100 gallons were sold two months ago and 20,000 gallons were sold last month, use the point formula to calculate the price elasticity of demand for gas at this station. Based solely on your calculations, is the demand for gasoline elastic or inelastic? If sales of Almond Joy bars at the same gas station's convenience store decreased over the same time frame, what relationship do gasoline and Almond Joy bars have? Do you have enough information to calculate the cross-price elasticity of demand for gas and Almond Joy bars? If so, make the calculation. If not, explain why not. Show all calculations.
Explanation / Answer
Change in Price
= 3.10-2.80
= 0.30
midpoint= (3.10+2.80)/2
=2.95
% change in price
=(0.30/ 2.95) * 100
=10.169
Change in quantity demanded
=20100-20000
=100
midpoint=(20100+20000)/2
=20050
% change in quantity demanded
=(100/20050)*100
=0.498
Ed=(% change in quantity demanded)
(% change in price)
Ed=0.498
10.169
Ed=0.049
Since elasticity is greater than zero ie positive it is elastic.
With the price rise in gasoline,the quantity demanded for Almond Joy bars also fell.This means thats Almond Joy Bars are complements to gasoline
No,there isn't sufficient information to calculate the cross price elasticity of demand for gas and Amond Joy bars.
This is because in order to calculate cross price elasticity apart from change in price of gasoline we would also require change in quanity demanded of Almond Joy bars(a figure).