Assume Jessica consumes both pretzels and Eskimo Bars. Quantity of Pretzels Tota
ID: 1134473 • Letter: A
Question
Assume Jessica consumes both pretzels and Eskimo Bars.
Quantity of Pretzels
Total Utility (Pretzels)
Marginal Utility from Pretzels (in Utils)
MU per Dollar (Pretzels)
Quantity of Eskimo Bars
Total Utility (Eskimo Bars)
Marginal Utility from Eskimo Bars (in Utils)
MU per Dollar (Eskimo Bars)
0
0
0
0
1
8
8
$4.00
1
10
10
$10.00
2
15
7
$3.50
2
18
8
$8.00
3
21
6
$3.00
3
24
6
$6.00
4
26
5
$2.50
4
28
4
$4.00
5
30
4
$2.00
5
31
3
$3.00
6
33
3
$1.50
6
33
2
$2.00
(b) Assume that the price of wheat, an input for the production of pretzels, increases. Will Jessica’s
demand for pretzels increase, decrease, or not change?
Explain.
(c) Suppose that when the price of Eskimo Bars increases by 10 percent, Theresa buys 5 percent fewer
Eskimo Bars and 4 percent less of a different snack product. Calculate the cross-price elasticity for
Eskimo Bars versus the other snack. Indicate whether the sign is positive or negative.
Explain what the sign means.
Quantity of Pretzels
Total Utility (Pretzels)
Marginal Utility from Pretzels (in Utils)
MU per Dollar (Pretzels)
Quantity of Eskimo Bars
Total Utility (Eskimo Bars)
Marginal Utility from Eskimo Bars (in Utils)
MU per Dollar (Eskimo Bars)
0
0
0
0
1
8
8
$4.00
1
10
10
$10.00
2
15
7
$3.50
2
18
8
$8.00
3
21
6
$3.00
3
24
6
$6.00
4
26
5
$2.50
4
28
4
$4.00
5
30
4
$2.00
5
31
3
$3.00
6
33
3
$1.50
6
33
2
$2.00
Explanation / Answer
B it will decrease since rise in price of wheat will result in rise in price of pretzels
C cross elasticity=proportionate change in quantity demanded of other snack/proportionate change in price of Eskimo bars= - 4/10=-0.4
It is negative because as price of bars rise demand for other snack Falls. They are complements because sign is negative
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