Asked by Rhonda Golden on Jun 02, 2024
Verified
Recently, in Smalltown, the price of Twinkies fell from $0.80 to $0.70. As a result, the quantity demanded of Ho-Ho's decreased from 120 to 100. What would be the appropriate elasticity to compute? Using the midpoint method, compute this elasticity. What does your answer tell you?
Elasticity
The degree to which the quantity demanded or supplied of a good or service changes in response to a change in price.
Midpoint Method
A technique used in economics to calculate the percentage change in a variable by dividing the change by the average value of the initial and final values.
Twinkies
A popular snack cake in the United States, characterized by its golden sponge cake exterior and creamy filling.
- Leverage the midpoint method to measure diverse types of elasticity, including the price elasticity of demand, the income elasticity of demand, and cross price elasticity.
Verified Answer
DD
Davotrick DotreyJun 09, 2024
Final Answer :
The appropriate elasticity to compute would be cross-price elasticity. The cross-price elasticity for this example would be 1.36. The two goods are substitutes because the cross-price elasticity is positive.
Learning Objectives
- Leverage the midpoint method to measure diverse types of elasticity, including the price elasticity of demand, the income elasticity of demand, and cross price elasticity.