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Interpreting the elasticity values

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For each of the following cases, calculate the arc price elasticity of demand, and state whether demand is elastic, inelastic, or unit elastic.

a. When the price of milk increases from \$2.25 to \$2.50 per gallon, the quantity demanded falls from 100 gallons to 90 gallons.
b. When the price of paperback books falls from \$7.00 to \$6.50, the quantity demanded rises from 100 to 150.
c. When the rent on apartments rises from \$500 to \$550, the quantity demanded decreases from 1,000 to 950.

You have the following information for your product:
The price elasticity of demand is -2,0
The income elasticity of demand is 1.5
The cross-price elasticity of demand between your good and a related good is -3.5

What can you determine about consumer demand for your product from this information?

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Solution Preview

Please refer attached file for complete solution.

You have the following information for your product:
The price elasticity of demand is -2,0
The income elasticity of demand is 1.5
The cross-price elasticity of demand between your good and a related good is ...

Solution Summary

Solution depicts the steps to estimate the arc price elasticity value for each of the given cases.

\$2.19