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Mitchell's equilibrium consumption and own-price elasticity

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If a price increase from $5 to $7 causes quantity demanded to fall from 250 to 100, what is the
absolute value of the own-price elasticity at a price of $7?
A)1.75.
B) 5.25.
C) 0.19.
D) 2.15.

Mitchell's money income is $150, the price of X is $2, and the price of Y is $2. Given these prices and
income, Mitchell buys 50 units of X and 25 units of Y. Call this combination of X and Y bundle J. At
bundle J Mitchell's MRS is 2. Given these prices and income, what is Mitchell's equilibrium
consumption of X?
A) X < 50.
B) X = 50.
C) X > 50.
D) X = Y.

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Solution Summary

Answers two multiple choice economics problems on price elasticity of demand and equilibrium consumption.

Solution Preview

If a price increase from $5 to $7 causes quantity demanded to fall from 250 to 100, what is the
absolute value of the own-price elasticity at a price of $7?
A)1.75.
B) 5.25.
C) 0.19.
D) 2.15.
Percentage change in price = (5-7)/7=-.286 or -28.6%
Percentage change in quantity demanded = (250-100)/100=1.5 or 150%
Own price ...

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