1.5 — Demand — Practice

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You can spend your income on apples and oranges. Apples currently cost $0.25 and oranges cost $0.50. When your income is $40, you buy 10 apples and 8 oranges. When your income increases to $80, you buy 12 apples and 6 oranges

Question 1

What type of good are apples (inferior, necessity, luxury)? Calculate the income elasticity of demand.

Question 2

What type of good are oranges (inferior, necessity, or luxury)? Calculate the income elasticity of demand.

You can can have cereal and milk for breakfast. When milk is $2/gallon, you consume 5 bowls of cereal per week. When milk increases to $4/gallon, you consume 4 bowls of cereal per week.

Question 3

What is the relationship between these two goods?

Question 4

Calculate the cross-price elasticity of demand.

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