Check Your Understanding

1. Question

   After Chelsea’s income increased from $12,000 to $18,000 a year, her purchases of music downloads increased from 10 to 40 music downloads a year. Calculate Chelsea’s income elasticity of demand for music downloads using the midpoint method.

2. Question

   As the price of margarine rises by 20%, a manufacturer of baked goods increases its quantity of butter demanded by 5%. Calculate the cross-price elasticity of demand between butter and margarine. Are butter and margarine substitutes or complements for this manufacturer?

3. Question

   Using the midpoint method, calculate the price elasticity of supply for web-design services when the price per hour rises from $100 to $150 and the number of hours supplied increases from 300,000 hours to 500,000. Is supply elastic, inelastic, or unit-elastic?