Answer to Question #98245 in Microeconomics for Emmanuel T. Chris

Question #98245
a. The price of a cup of coffee was $0.29 in 1970 and $0.99 in 1993. The CPI was 38.8 in 1970 and 144.0 in 1993. Calculate the 1993 price of a cup of coffee in 1970 dollars.
b. For Chinese consumers, the income elasticity of demand for fruit juice is 1.1. If the economy enters a recession next year and consumer income declines by 2.5%, what is the expected change in the quantity of fruit juice demanded next year?
1
Expert's answer
2019-11-11T15:44:38-0500

Solution:

a) Calculate the 1993 price of a cup of coffee in 1970 dollars


"p= \\frac{p1970\\times CPI1993}{p1993\\times CPI 1970}"

"p=\\frac{0.29\\times144}{0.99\\times33.8}=1.25"

Answer:1.25

b) The expected change in the quantity of fruit juice demanded next year is:


"\\varDelta Q=E\\times \\varDelta I"

"\\varDelta Q=1.1\\times(-2.5)=-2.75"

Answer: Will decrease by 2.75%


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