(1) Consider the apple juice and orange juice markets

(1.) The cross-price elasticity of good X for good Y (Exy) is given by the following formula:

Exy = (% change in the quantity demanded of X)/(% change in the price of Y).

For the mid-point approach, the average of the two quantities and the average of the prices are used as the bases in calculating the percentage changes. This approach is used to avoid the likelihood of the elasticity differing if either of the endpoints is used instead. In this particular case, the cross-price elasticity of apple juice with respect to a price change for orange juice (Eao) is then:

Eao = ((change in consumption of apple juice)/(average consumption of apple juice for the two prices))/((change in the price of orange juice)/(average price of orange juice between the two prices))

Eao = ((22- 18)/((18+22)/2))/((3.75-3.25)/((3.25+3.75)/2))

= (4/20)/(.50/3.50)

= .2/.143

= 1.40.

So, the cross-price elasticity of the demand for apple juice is 1.40, which means that the consumption of apple juice goes up by 1.4% for every 1% increase in the price of orange juice.

(2.) Again using the mid-point approach, Jane's income elasticity of demand (Einc) for bus rides between year 1 and 2 is:

Einc = ((change in consumption of bus rides)/(average consumption of bus rides for the two years))/((change in Jane's income)/(Jane's average income for the two years))

Einc = ((17- 10)/((17+10)/2))/((20,000-30,000)/((20,000+30,000)/2))

= (7/13.5)/(-10,000/25,000)

= .52/-.4

= -1.30.

So, Jane?s income elasticity of demand for bus rides is -1.3, which means that her demand for rides decreases by 1.3% for every 1% increase in her income.