Explain why the cross elasticity of demand for substitute goods is positive and the cross elasticity of demand for complements is negative.

Assignment. Chapter 5-Elasticity.

Provide descriptive answers to the following questions. Each question is worth 3 points.

1. A local pizzeria charges $10 for a pizza. The owner of the pizzeria wants to increase the company’s total revenue. A recent market research shows that the price elasticity of demand for his pizza is about 1.5. Should the pizzeria lower or raise the price? Explain your answer.

2. Does the fact that the price elasticity for food is inelastic violate the law of demand? Explain your answer.

3. Explain why the cross elasticity of demand for substitute goods is positive and the cross elasticity of demand for complements is negative.

4. Price (In dollars) Quantity Demanded
(Units per Week)
A 100 40
B 80 60
C 60 80
D 40 100
E 20 120

The table above gives the demand schedule for a good. What is the total revenue at point A? At point B? At point C? At point D? At point E?

5.Price (In dollars) Quantity Demanded
(Units per Week)
A 100 40
B 80 60
C 60 80
D 40 100
E 20 120

The table above gives the demand schedule for a good. Using the midpoint method, find the price elasticity of demand between points A and B, between B and C, between C and D, and between D and E

Explain why the cross elasticity of demand for substitute goods is positive and the cross elasticity of demand for complements is negative.

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