For this question, please refer to the following table: https://drive.google.com

Question

For this question, please refer to the following table: https://drive.google.com/file/d/0B-gQ84rVpHz_TWVtcWUxUzhTb1k/view?usp=sharing

Assume that factors that may change demand but are not listed in the table below do not change between the three months. What is the price elasticity of demand for cookies?

1/4

1/3

1/2

1

Not enough information

For this question, please refer to the following table: https://drive.google.com/file/d/0B-gQ84rVpHz_TWVtcWUxUzhTb1k/view?usp=sharing

Assume that factors that may change demand but are not listed in the table below do not change between the three months. True or False: Both cookies and cat food are normal goods.

True

False

Is the answer 1//3? and is it also true? Please show steps for problem one! Thanks!

Explanation / Answer

1) Here for the first one the answer should be not enough information. The reason is whenever we want to calculate the price elasticity of demand then there shold be fixed the other factor like income of the consumer , price of other goods etc. Here from month of january to february price is changing with fixed income 10000 but in the month of march from there is change in income but price is fixed. The price of other good i.e cat food is fixed that does not change. So here no question of cross price elasticity of demand. We can only calculate the price elasticity of demand from month of january to february, because here only price changes with fixed income. To get the price effect with other thing remaining same there has to be change in price. This price change we can get only january to february. From month of february to march we can get income elasticity of demand because between these two months price fixed and income changes. Between january to february the price elasticity is 2/7.

It is true because otherwise we can not calculate any kind of price effect. When we want to calculate any effect whether it is price or income or cross price there should be other thing remaining fixed.

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