question archive Use the following chart regarding elasticities to answer the question that follows
Use the following chart regarding elasticities to answer the question that follows
Subject:EconomicsPrice:2.88 Bought3
Use the following chart regarding elasticities to answer the question that follows.
| Elasticity | Value |
| Price elasticity of demand for cupcakes | -2.50 |
| Price elasticity of supply for cupcakes | 1.50 |
| Income elasticity of demand for cupcakes | 1.50 |
| Cross-price elasticity of demand between cupcakes and brownies | 0.25 |
| Cross-price elasticity of demand between cupcakes and juice | -0.45 |
Which of the following is true?
a. Cupcakes are a normal good, a substitute of brownies, and a complement for juice,
b. Cupcakes are a normal good, a complement of brownies, and a substitute for juice,
c. Cupcakes are an inferior good, a complement of brownies, and a substitute for juice,
d. Cupcakes are an inferior good, a substitute of brownies, and a complement for juice.
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a. Cupcakes are a normal good, a substitute of brownies, and a complement for juice
Reason: Cupcakes are normal good because in case of a normal good, the income elasticity of demand is positive, which is the case here. This indicates that as the consumer's income increases, he/ she will demand more quantities of cupcakes and vice versa.
Cupcake and brownies are substitute because, the cross elasticity of demand between the two is positive, which indicates that when the price of brownies will increase, the quantity demanded of cupcakes will increase and when the price of brownies will decrease, the quantity demanded of cupcakes will decrease.
Cupcakes and juice are compliments because, the cross elasticity of demand between the two is negative which indicates that when the price of juice will increase, the quantity demanded of cupcakes will decrease and when the price of brownies will decrease, the quantity demanded of cupcakes will increase.
