7. Karen purchases 4 pizzas per month when the price is $15 and 3 per month when the price is
$20. Calculate Karen's price elasticity for pizza at the price of $15. Is her demand for pizza
elastic or inelastic? How much money does Karen spend on pizza each month before and after
the price increase? Does this change correspond with the predicted effect due to the elasticity of
demand?
8. The Last Chance Deli sells 150 club sandwiches a day when the price of meatball subs is $10
and 180 club sandwiches when they raise the price of meatball subs to $12. Calculate the cross
price elasticity when the price of meatball subs is $10. Based on your answer, are these two
sandwiches substitutes or complements?
9. Graham spends $600 on jewelry annually when his income is $80,000 per year and $900 on
jewelry when her income rises to $120,000 per year and the price of jewelry remains unchanged.
Calculate Graham's income elasticity for jewelry when his income is $30,000. Based on your
answer, is jewelry a necessity or luxury for Graham?
10. On a budget line - indifference curve diagram, draw out the case of a Giffen good.
11. On a budget line - indifference curve diagram, draw out an income expansion path for two
goods, one of which is an inferior good. Make sure you indicate which good is inferior.