Question 5[15]

5.1.Suppose that the price of whiskey increases from R100 to R150 a bottle and as a result the quantity demanded decreases from 1100 bottles to 800 bottles.

5.1.1.Use the ARC (midpoint) formula to calculate the price elasticity of demand for whiskey.(3)

5.1.2.Based on the calculated elasticity value in 5.1.1, indicate whether the demand in the market for whiskey is elastic or inelastic.(1)

5.1.3.Based on your answer in 5.1.2, illustrate the elasticity of demand in the market for whiskey. Clearly indicate the correct percentage changes in price and quantity on the elasticity graph.(4)

5.1.4.Explain how producers could increase total revenue given the calculated elasticity coefficient.(2)

5.2.Use the income elasticity of demand to distinguish between a normal good and an inferior good. In your explanation, provide the correct elasticity coefficient for each product and the relationship between income and quantity demanded.(4)

5.3.The cross-price elasticity coefficient between Apple and Android is 2,0. Are these goods complements or substitutes?(1)