Assignment On Microeconomics | Price Elasticity Questions&Answers
Added on 2020-02-05
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MICROECONOMICS
QUESTION 2(a)Income elasticity of demand (IEoD) = (% change in quantity demanded) / (% change inincome)= $1800 - $1500 / $1500* 100= 20%IEoD = 20%As given, demand for tickets of concert increased by 25% and for bus rides, it decreasedby 6%Income elasticity of demand for concert tickets = 25% / 20%=1.25%If IEoD > 1, then they are price elastic goods in case of concert tickets. These are priceelastic because IEoD > 1 which represents that there is high variation in demand and price. Asthere is positive and increasing income, it means that demand is high. So, these are normal goods.Income elasticity of demand for bus rides = -6% / 20%=-0.3%If IEoD < 0then they are price inelastic goods. However, in case of bus rides, they areincome inelastic that means demand is not sensitive to changing price. These are inferior goodsbecause demand is decreasing but income is increasing. (b)PeoD for Sushi = (% change in quantity demanded) / (% Change in Price)Price elasticity of Sushi= = 3% / (-7%)= (-0.42%)Cross elasticity of Wasabi= (% change in quantity demanded of Wasabi) / (% Change inPrice of Sushi)=5% / (-7%)
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