When the price of a gallon of orange juice rises from 1.50 to ...

[c0205847]

When the price of a gallon of orange juice rises from 1.50 to 2.00, the number of gallons of apple juice demanded rises from 20,000 to 30,000 per year.
 
  Use the midpoint formula to calculate the cross-price elasticity between orange juice and apple juice. What does the sign imply about the relationship between these two goods?

Question 2

What is the economic problem?
 
  What will be an ideal response?

[bimper21]

Answer to Question 1

Percentage change in quantity of apple juice demanded = (30,000-20,000)/25,000
= 10,000/25,000 = 40 . Percentage change in the price of orange juice = (2.00 - 1.50)/1.75 = 0.50/1.75 = 28.6.
cross price elasticity = 40/28.6 = 1.4.

Because the cross-price elasticity is positive, this implies that the two goods are substitutes.

Answer to Question 2

The economic problem is finding a way for a society to answer the three basic economic questions (what will be produced?, how will it be produced?, and who will get what is produced?) given that resources are scarce.

[c0205847]

Thanks for the timely response, appreciate it

[jojobee318]

Excellent