## Self-Check Questions

What would the gasoline price elasticity of supply mean to UPS or FedEx?

## Hint:

The percentage change in quantity supplied as a result of a given percentage change in the price of gasoline.

The average annual income rises from $25,000 to $38,000, and the quantity of bread consumed in a year by the average person falls from 30 loaves to 22 loaves. What is the income elasticity of bread consumption? Is bread a normal or an inferior good?

## Hint:

$\begin{array}{ccc}\text{Percentagechangeinquantitydemanded}& =& \text{[(changeinquantity)/(originalquantity)]\xd7100}\\ & =& \text{[22 \u2013 30]/[(22 + 30)/2]\xd7100}\\ & =& \text{\u20138/26\xd7100}\\ & =& \text{\u201330.77}\\ \text{Percentagechangeinincome}& =& \text{[(changeinincome)/(originalincome)]\xd7100}\\ & =& \text{[38,000 \u2013 25,000]/[(38,000 + 25,000)/2]\xd7100}\\ & =& \text{13/31.5\xd7100}\\ & =& \text{41.27}\end{array}$In this example, bread is an inferior good because its consumption falls as income rises.

Suppose the cross-price elasticity of apples with respect to the price of oranges is 0.4, and the price of oranges falls by 3%. What will happen to the demand for apples?

## Hint:

The formula for cross-price elasticity is % change in Qd for apples / % change in P of oranges. Multiplying both sides by % change in P of oranges yields:

% change in Qd for apples = cross-price elasticity X% change in P of oranges

= 0.4 × (–3%) = –1.2%, or a 1.2 % decrease in demand for apples.