Question

when an oil company increases the price of its gasoline from $3.80 to $4.20, the demand for another company's gasoline increases from 90 to 110 gallons. using the midpoint method, one decimal place, and the negative sign if necessary, the cross-price elasticity between the two brands of gasoline is .

Answer 1

The cross-price elasticity between the two brands of gasoline is 2.

Step-by-step explanation:

The cross-price elasticity measures the responsiveness of the quantity demanded of one product to a change in the price of another product. In this case, the cross-price elasticity between the two brands of gasoline can be calculated using the midpoint method.

The formula for calculating cross-price elasticity using the midpoint method is: ( (Q2 - Q1) / ((Q1 + Q2) / 2) ) / ( (P2 - P1) / ((P1 + P2) / 2) )

Using the given information:

Price of gasoline: $3.80 to $4.20

Quantity of another company's gasoline: 90 to 110 gallons

Plugging these values into the formula:

( (110 - 90) / ((90 + 110) / 2) ) / ( (4.20 - 3.80) / ((3.80 + 4.20) / 2) )

Simplifying the equation:

(20 / 100) / (0.40 / 4.00) = 0.20 / 0.10 = 2

The cross-price elasticity between the two brands of gasoline is 2.

Answer 2

The cross-price elasticity of demand between the two brands of gasoline, calculated using the midpoint method, is approximately 1.9. This positive value suggests that the goods are substitutes; as the price of one brand increases, the demand for the other brand also increases.

Step-by-step explanation:

The student is asking about the cross-price elasticity of demand, which measures the responsiveness of the quantity demanded of one good when the price of another good changes. To calculate the cross-price elasticity using the midpoint method, we use the formula:

Cross-price elasticity of demand (Exy) = (% change in quantity demanded of good Y) / (% change in price of good X)

To find the percentage changes, we use the midpoint formula:

• 
  
• Percentage change in quantity = (Q2 - Q1) / ((Q1 + Q2) / 2) × 100%
• 
  
• Percentage change in price = (P2 - P1) / ((P1 + P2) / 2) × 100%

In this case, for the other company's gasoline, the quantity demanded increases from 90 to 110 gallons and the price of the oil company's gasoline increases from $3.80 to $4.20.

Using these values:

• 
  
• Percentage change in quantity = (110 - 90) / ((90 + 110) / 2) × 100% ≈ 20.0%
• 
  
• Percentage change in price = ($4.20 - $3.80) / (($3.80 + $4.20) / 2) × 100% ≈ 10.3%

Now we calculate the cross-price elasticity:

Exy = (20.0%) / (10.3%) ≈ 1.9

The cross-price elasticity between the two brands of gasoline is approximately 1.9, and since it's positive, it indicates that the goods are substitutes.