A newspaper story on the effect of higher milk prices on the market for ice cream contained the following:
"As a result [of the increase in milk prices], retail prices for ice cream are up 4 percent from last year. . . .
And ice cream consumption is down 3 percent."
Source: John Curran, "Ice Cream, They Scream: Milk Fat Costs Drive Up Ice Cream Prices," Associated Press, July 23, 2001.
Based on the information given, what is the price elasticity of demand for ice cream?
A) 12%
B) 0.75 (in absolute value)
C) 1.33 (in absolute value)
D) We do not have enough information to calculate the elasticity.
B
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In the Keynesian model, an increase in government purchases affects output by
A) increasing labor supply, because workers feel effectively poorer. B) increasing saving to pay for future taxes, lowering the real interest rate and shifting the IS curve to the left. C) increasing the real interest rate due to crowding out, reducing aggregate demand. D) increasing aggregate demand as national saving declines.
A U.S. mutual fund buys stocks issued by a Columbian company. This purchase is an example of
a. U.S. foreign direct investment. It increases Columbia's net capital outflow. b. U.S. foreign direct investment. It decreases Columbia's net capital outflow. c. U.S. foreign portfolio investment. It decreases Columbia's net capital outflow. d. U.S. foreign portfolio investment. It increases Columbia's net capital outflow.