gasoline.

8.

In this example, bread is an inferior good because its consumption falls as income rises.

9. The formula for cross-price elasticity is % change in Qd for apples / % change in P of oranges. Multiplying

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545

both sides by % change in P of oranges yields:

% change in Qd for apples = cross-price elasticity X% change in P of oranges

= 0.4 × (–3%) = –1.2%, or a 1.2 % decrease in demand for apples.

Chapter 6

1. The rows of the table in the problem do not represent the actual choices available on the budget set; that is,

the combinations of round trips and phone minutes that Jeremy can afford with his budget. One of the

choices listed in the problem, the six round trips, is not even available on the budget set. If Jeremy has only

$10 to spend and a round trip costs $2 and phone calls cost $0.05 per minute, he could spend his entire

budget on five round trips but no phone calls or 200 minutes of phone calls, but no round trips or any
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