Practice 1: Elasticities 1. A 20% rise in the price of chicken causes the amount of chicken you buy to fall by 20%. Your price elasticity of demand is _ 2. A 40% fall in the price of strawberries causes the quantity demanded of strawberries to increase by 80%. ) What is the price elasticity of demand for strawberries? II) Is the demand for strawberries elastic or inelastic? Why? 3. Business travelers and vacationers have different price elasticities of demand for airline tickets from Jacksonville to Atlanta. When the price of airline tickets increases by 20%, the number of tickets bought by business travelers declines by 5%, and the number of tickets bought by vacationers declines by 30%. [) Calculate price elasticities of demand for business travelers and vacationers, respectively. II) Who is less sensitive to price change: business travelers or vacationers? MacBook Air DII DD F3 F4 F5 F6 F7 F8 F9 @ # A & 2 3 4 5 6 7 8 9 W E R T Y UInsert Table Chart Text Shape Media Comment 4. When the price of home heating oil increases by 20%, the quantity demanded of home heating oil decreases by 2% and the demand for wool sweaters increases by 10%. I Calculate the elasticity of demand for home heating oil. II Is the demand for home heating oil elastic or inelastic? Why? III, If the price of a wool sweater did not change, calculate the cross elasticity of demand for wool sweaters with respect to the price of home heating oil. [Hint: Good X is wool sweaters, and Good Y is home heating oil.] IV) Are home heating oil and wool sweaters substitutes or complements? Why? 5. A survey found that when incomes increased by 10%, the following changes in quantities demanded occurred: spring water up by 5%; sports drinks down by 2%; cruises up by 15%. I Calculate income elasticity for spring water. Is it a normal good, an inferior good, or a luxury good? II) Calculate income elasticity for sports drinks. Is it a normal good, an inferior good, or a luxury good? VacBook Air : 20 888 DD F3 F4 F5 F6 F7 FR @ # $ N 3 4 5 6 7 8 9II) Calculate income elasticity for sports drinks. Is it a normal good, an inferior good, or a luxury good? III) Calculate income elasticity for cruises. Is it a normal good, an inferior good, or a luxury good? DII 20 888 F5 F6 F7 F8 F1 F2 F3 F4 @ b % & N 3 5 7 8 9 4