Answer to Question #98245 in Microeconomics for Emmanuel T. Chris

Answer to Question #98245 in Microeconomics for Emmanuel T. Chris

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Question #98245

a. The price of a cup of coffee was $0.29 in 1970 and $0.99 in 1993. The CPI was 38.8 in 1970 and 144.0 in 1993. Calculate the 1993 price of a cup of coffee in 1970 dollars.
b. For Chinese consumers, the income elasticity of demand for fruit juice is 1.1. If the economy enters a recession next year and consumer income declines by 2.5%, what is the expected change in the quantity of fruit juice demanded next year?

Expert’s answer

Solution:a) Calculate the 1993 price of a cup of coffee in 1970 dollars Answer:1.25b) The expected change in the quantity of fruit juice demanded next year is: Answer: Will decrease by 2.75%

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