Dominick Salvatore Schaums Outline of Microeconomics, 4th edition Schaums Outline Series 2006

CHAP. 3] THE MEASUREMENT OF ELASTICITIES 59
If the supply curve takes the shape of a rectangular hyperbola, then [compare Problem 3.8(b)] e s ¼ 21.
Fig. 3-16
SOME EMPIRICAL ESTIMATES AND APPLICATIONS OF ELASTICITY
3.24 Table 3.20 gives the estimated price, cross, and income elasticities for selected commodities in the U.S.
or the U.K. (a) Indicate from the price elasticities (e) if the demand is elastic or inelastic; from the cross
elasticities (e xy ) if the commodities are substitutes or complements; and from the income elasticity (e M )
whether the commodity is a luxury, a necessity, or an inferior good. (b) Indicate the change in the
amount purchased of each commodity if the commodity price or the consumer’s income rose by 10%.
Table 3.20
Price Elasticity of Demand Cross Elasticity of Demand Income Elasticity of Demand
Commodity e Commodities e xy Commodity e M
Beef 0.92 Beef, pork 0.28 Butter 0.42
Potatoes 0.31 Butter, margarine 0.67 Margarine 20.20
Sugar 0.31 Cheese, butter 20.61 Meat 0.35
Electricity 1.20 Sugar, fruits 20.28 Electricity 0.20
Restaurant meals 2.27 Electricity, natural gas 0.2 Restaurant meals 1.48
U.K.; all other, U.S.
Source: Schultz, Theory and Measure of Demand, University of Chicago Press, 1938; L. Taylor, “The Demand for Electricity: A
Survey,” Bell Journal of Economics, Spring 1975; H. Wold, Demand Analysis, New York, Wiley, 1953; L. Taylor and
R. Halvorsen, “Energy Substitution in U.S. Manufacturing,” Review of Economics and Statistics, November 1977;
R. Stone, The Measurement of Consumer’s Expenditures and Behavior in the United Kingdom, 1920–1938, vol. 1, Cambridge
University Press, 1954.
(a) The answers are given in Table 3.21.
Table 3.21
Commodity
Type of
Demand
Commodities
Type of
Commodities
Commodities
Type of
Commodity
Beef Inelastic Beef, pork Substitutes Butter Necessity
Potatoes Inelastic Butter, margarine Substitutes Margarine Inferior
Sugar Inelastic Cheese, butter Complements Meat Necessity
Electricity Elastic Sugar, fruits Complements Electricity Necessity
Restaurant meals Elastic Electricity, natural gas Substitutes Restaurant meals Luxury