. When the price of ice cream rose 25%, the quantity of ice cream sold fell 10%, and the sale of chocolate?

Question

When the price of ice cream rose 25%, the quantity of ice cream sold fell 10%, and the sale of chocolate
syrup also fell 15%. This set of facts indicates that:
a. The demand for ice cream is price elastic.
b. The demand for chocolate syrup is price elastic.
c. The cross-price elasticity between ice cream and chocolate syrup is negative, so the two are complements.
d. The cross-price elasticity between ice cream and chocolate syrup is positive, so the two are substi-
tutes.

Long-run price elasticities of supply are generally larger than short-run price elasticities of supply.
Therefore, long-run supply curves are generally steeper than short-run supply curves.
a. True.
b. False.

Answer 1

I'll have to agree with Miss Sez81.

when ice-cream prices went up 25% and volume went down only 10%, that shows ice-cream is inelastic, so (a) is incorrect. The price of chocolate syrup hasn't changed, so no price elasticity for chocolate syrup, (b) is wrong. When ice cream prices went up, volume demanded of chocolate syrup went down, that is a negative relation, so (c) is the right answer.
For (d) to be right, the volume demanded of chocolate syrup would have had to go up when the price of ice-cream went up.

As for the second question, it is false. The long run allows consumers to adjust to price changes, so there is more elasticity. That means that the slope is less steep.

Answer 2

1. Change in icecream price is greater than change in choco syrup demand. Hence, elasticity is negative. Both are complimentary goods because they are used together, and the demand of syrup is responsive to price change in icecream.
Answer c

2.In the long-run, supply changes increase on greater extent with more time for market to respond. Greater change in supply, makes Supply curve slope more gentle, and elasticty becomes positive.
Ans:b-False