Elasticity problems
1. An increase in the price of hot dogs from $1.50 to $2.10 per pound increased the average number of burgers demanded per week from 300 to 360. Assuming that all other economic variables were held constant, what is the cross-price elasticity of demand between hot dogs and burgers? What does this elasticity tell you about the relationship between the two?
2. A cafe observed an increase in the demand for its coffee following a rise in the price of a cup of tea from $1.20 to $1.50. Assuming the cross price elasticity of demand for coffee with respect to change in the price of tea is +0.80, by how much (in percent) will the demand for coffee have increased?
3. The price of good X falls by 15%. As a result, the demand for a substitute good rises by 30%. What is the cross-price elasticity of demand for good Y with respect to good X?
4. Consider the markets for widgets and cogs. You study survey data and observe that if widgets cost $5, the 100 widgets are demanded. You also observe that if widgets cost $3, then 150 cogs are demanded and if widgets cost $4 then 100 cogs are demanded. If cogs cost $2, then 125 cogs are demanded. Calculate all possible price elasticities of demand. Label the elasticities as needed.
5. If Ali's income increases from $36,000 to $40,000 and the amount of donuts he consumes increases from 52 to 86, calculate the income elasticity of demand. Are the donuts normal or inferior goods?