Answer
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Step 1:: Calculate the midpoint of the initial and final prices of peanut oil.
\text{Midpoint} &= \frac{\$5 + \$4}{2} \
The midpoint formula is given by: Using the given information, we have: \begin{align*} &= \$4.50 \end{align*}
Step 2:: Calculate the midpoint of the initial and final quantities demanded.
\text{Midpoint} &= \frac{8 + 10}{2} \
Using the given information, we have: \begin{align*} &= 9 \end{align*}
Step 3:: Calculate the price elasticity of demand using the midpoint method.
&= -\frac{2}{9} \times -\frac{\$4.50}{-\$1} \
The formula for price elasticity of demand using the midpoint method is given by: Where: \begin{align*} \end{align*} Using the given information, we have: \begin{align*} &= \boxed{1.25} \end{align*}
Step 4:: Determine whether demand is elastic or inelastic.
$\square 1.25$ and demand is relatively elastic.
If the price elasticity of demand is greater than 1, then demand is elastic. If it is less than 1, then demand is inelastic. In this case, the price elasticity of demand is 1.25, so demand is relatively elastic. Therefore, the correct answer is:
Step 5:: Analyze the cross-price elasticity of demand between soda and potato chips.
The cross-price elasticity of demand is given by: In this case, the cross-price elasticity of demand between soda and potato chips is - 0.87. This means that the two products are complements, since a decrease in the price of soda leads to a decrease in the quantity demanded of potato chips.
Step 6:: Determine the effect on demand for potato chips when the price of soda is lowered.
$\square$ decreases.
Since soda and potato chips are complements, a decrease in the price of soda will lead to an increase in the quantity demanded of soda, but a decrease in the quantity demanded of potato chips. Therefore, the correct answer is:
Final Answer
Question 10: $\square 1.25$ and demand is relatively elastic. Question 11: $\square$ decreases.
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