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# Calculating price and elasticity of demand

Suppose that your demand schedule for cell phone applications is as follows:

Quantity Demanded per Year Quantity Demanded per Year
Price per Application (income = \$40,000 per year) (income = \$50,000 per year)
\$ 2 60 70
4 52 59
6 44 50
8 32 42
10 24 30

? Calculate the price elasticity of demand as the price of a cell phone application decreases from \$6 to \$4 if your income is: (i) \$40,000 per year, and (ii) \$50,000 per year. Is the price elasticity of demand elastic, inelastic or unitary elastic? Briefly explain

? Calculate the income elasticity of demand as your income increases from \$40,000 to \$50,000 if: (i) the price per cell phone application is \$6, and (ii) the price is \$8. Is the income elasticity of demand high, low or unitary? Briefly explain.

#### Solution Preview

Please refer attached file for complete solution. Expressions typed with the help of equation writer are missing here.

? Calculate the price elasticity of demand as the price of a cell phone application decreases from \$6 to \$4 if your income is:
(i) \$40,000 per year, and

Price elasticity of demand=

(ii) \$50,000 per year.

Price elasticity of demand=

Absolute value of price ...

#### Solution Summary

Solution describes the steps to calculate price and elasticity of demand.

\$2.19