When the price of a bracelet was $25 each, the jewelry shop sold 20 per month. When it raised the price to $35 each, it sold 14 per month. Using the midpoint method, the price elasticity of demand for bracelets is about

Group of answer choices

0.94.

0.60.

1.66.

1.06.

Transcribed Image Text:

A consumer's preference over two goods (good 1 and good 2) can be represented by the utility function u(x₁, x₂) = ln x₁ + x₂ where x₁ is the amount of good 1 that the consumer purchases and x₂ is the consumer's expenditure on all other goods except good 1. The price of good 1 is 0.01 TL. The consumer has a money income of 0.50 TL that she intends on spending on both goods. a) What type of preference does the consumer have over goods 1 and 2? [1 point] b) How much of good 1 does the consumer purchase? [5 points] c) Suppose the price of good 1 increases from 0.01 TL to 0.02 TL. Find (a) the compensating variation C and (b) the equivalent variation E. [4 points] A consumer's preference over two goods (good 1 and good 2) can be represented by the utility function u(x₁, x₂) = ln x₁ + x₂ where x₁ is the amount of good 1 that the consumer purchases and x₂ is the consumer's expenditure on all other goods except good 1. The price of good 1 is 0.01 TL. The consumer has a money income of 0.50 TL that she intends on spending on both goods. a) What type of preference does the consumer have over goods 1 and 2? [1 point] b) How much of good 1 does the consumer purchase? [5 points] c) Suppose the price of good 1 increases from 0.01 TL to 0.02 TL. Find (a) the compensating variation C and (b) the equivalent variation E. [4 points]

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060 The midpoint formula for price ... View the full answer