Suppose the Price of Butter Increases by 5 Percent and the Amount

question 82

Multiple Choice

Suppose the price of butter increases by 5 percent and the amount of margarine purchased increases by 25 percent. What is the cross-price elasticity of demand between these two goods?

• A) 0.2
• B) 5
• C) 1.0
• D) −5.0

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Definitions:

Consumer Surplus

The difference between the total amount that consumers are willing and able to pay for a good or service and the total amount that they actually pay.

Single-Price Monopolist

A market dominance condition where a monopolist charges the same price for all units of a product sold to every consumer.

Perfectly Price Discriminate

A theoretical pricing strategy where a seller charges the maximum price each individual consumer is willing to pay, capturing all consumer surplus.

Profit Area

A segment of a business or a market where the income earned is more than the expenses incurred, resulting in a financial gain.