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Goods H, I, and J are related goods, each operating in a perfectly competitive market. As the price of Good H increases from $4 to
Goods H, I, and J are related goods, each operating in a perfectly competitive market.
- As the price of Good H increases from $4 to $5, its quantity demanded falls from 100 units to 60 units. Calculate the price elasticity of demand for this range.
- Good H is an input for Good I. Illustrate the effect of the price change from part (a) on a fully labeled supply and demand graph for Good I. Label the equilibrium price(s) and quantity or quantities. Use arrows to indicate any shifts.
- On your graph from (b), shade the consumer surplus in market for Good I after the change in part (a).
- The equilibrium price for Good J is $5, and the equilibrium quantity is 40 units. The cross-price elasticity of Good J with Good H is 2.
- Are Good J and Good H normal goods, inferior goods, complementary goods, or substitute goods?
- Calculate the new equilibrium quantity of Good J after a 50% price increase for Good H.
Step by Step Solution
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Step: 1
To calculate the price elasticity of demand for Good H we can use the formula Price elasticity of demand Percentage change in quantity demanded Percen...Get Instant Access to Expert-Tailored Solutions
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Step: 2
Step: 3
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