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36
36. When the price of green eggs is 50 cents apiece, Jackie buys 4 eggs and 3 slice of ham. When the price of green eggs decreases to 25 cents each, he buys 7 eggs and 5 slices of ham. What is the cross-price elasticity of demand?
Based on the information below, which of the following is true? United States cars tractors 0 3 4. 2 Japan cars tractors 0 6 12 4 24 2 36 0 1 8 12 0 Both countries could gain if the U.S. traded tractors to Japan for cars. none of the above Japan could gain from trade but the U.S. could not. Both countries could gain if the U.S. traded cars to Japan for tractors.
Expert Solution
Ans-1 Cross price elasticity = % change in quantity Demanded of Ham/ percentage change in price of Eggs.
Given:
Q ( ham) =3
P of ( egg) = 50 cents
New demand Q1 ( ham) = 5
New price P1 ( egg) = 25cents
Percentage change in quantity Demanded of Ham = Q1 - Q /Q x 100
= (5-3)/3 x 100
= 2/3 × 100
=66.66
Percentage change in price of egg = (P1-P)/P X 100
= (25-50)/50x100
=-25/50 × 100
= -50
Cross price elasticity of demand= 66.66/-50
=-1.33 ( Less than 1)
Ans-2 Both countries could gain if U.S traded tractors to japan for cars.
Explanation- Comparative advantage is an economic term that refers to an economy's ability to produce goods and services at a lower opportunity cost than that of trade partners. Here U.S has comparative advantage of producing tractors and on the other hand japan has comparative advantage of producing cars.
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