Page 132 concept problems
1, Explain why the price elasticity of demand is generally a negative number, except in the cases where the
demand curve is perfectly elastic or perfectly inelastic. What would be implied by a positive price elasticity of
demand?
That is because generally the demand curve is downward sloping because generally as price
increases, the demand for a good is said to be elastic (or relatively elastic) when its PED is greater
than one (in absolute value): that is, changes in price have a relatively large effect on the quantity of
a good demanded.
2, Explain why the sign (positive or negative) of the cross price elasticity of demand is important.
It measures the responsiveness in the quantity demanded of one good when the price for another
good change. In other words, it basically measures the impact of change in price of one good on the
quantity demanded of other good.
3, Explain why the sign (positive or negative) of the income elasticity of demand is important.
If it is positive quantity demanded will rise with rise in income. It is important because it shows
whether quantity demanded of a good will rise if income of consumer rises.
4, Economists Dale Heien and Cathy Roheim Wessells found that the price elasticity of demand for fresh milk
is -0.63 and the price elasticity of demand for cottage cheese is –1.1.[5]Why do you think the elasticity
estimates differ?
