Question

The owner of Christie’ Bookstore is looking into the sales of its Health & Fitness magazine section. She finds that her equilibrium is at 1000 magazines per month sold at an average price of $4.25 per magazine. When the average price of these Health & Fitness magazines rose to $4.95 each, the quantity demanded fell to 900 magazines per month, while the quantity supplied to her increased to 1250 a month. a. Draw an appropriate diagram for Christie’s original Health & Fitness magazine market. b. Calculate the price elasticity of demand for the Health & Fitness magazines between prices $4.25 and $4.95. Is it elastic or inelastic? How do you know? c. Calculate the price elasticity of supply for the Health & Fitness magazines between prices $4.25 and $4.95. Is it elastic or inelastic? How do you know based on your answer? d. Explain what factors would affect the elasticity of demand for Health &Fitness magazines. e. Christie also notices that when the average price of the Health & Fitness magazines rose from $4.25 to $4.95, the quantity of nutritious snack bars sold at the checkout register fell by 12%. Calculate the cross elasticity of demand between the two goods. Based on your answer, are they substitutes or complements?

Answer 1

The original Health & Fitness magazine market can be represented by a demand and supply curve. The price elasticity of demand is inelastic. The price elasticity of supply is elastic. Many factors can affect the demand elasticity for Health & Fitness magazines.

Step-by-step explanation:

a. The original Health & Fitness magazine market can be represented by a downward sloping demand curve and an upward sloping supply curve.

b. The price elasticity of demand can be calculated using the formula:

Elasticity of demand = % change in quantity demanded / % change in price

In this case, the price elasticity of demand is -0.67, which means it is inelastic. This is because the absolute value of the elasticity is less than 1.

c. The price elasticity of supply can be calculated using the formula:

Elasticity of supply = % change in quantity supplied / % change in price

In this case, the price elasticity of supply is 2.22, which means it is elastic. This is because the absolute value of the elasticity is greater than 1.

d. Factors that would affect the elasticity of demand for Health & Fitness magazines include the availability of substitutes, the necessity of the magazine, and consumers' income levels.

e. The cross elasticity of demand between Health & Fitness magazines and nutritious snack bars can be calculated using the formula:

Cross elasticity of demand = % change in quantity demanded of nutritious snack bars / % change in price of Health & Fitness magazines

In this case, the cross elasticity of demand is -0.21, which means the two goods are complements. This is because the change in quantity demanded is negative when the price of Health & Fitness magazines increases.