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Calculating price and elasticity of demand

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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.

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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 provided by:
Lokesh Jain, MSc
Education
  • BEng (Hons) , Birla Institute of Technology and Science, India
  • MSc (Hons) , Birla Institute of Technology and Science, India
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