Calculating Price, Cross, Income Elasticity of demand
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Using the "arc formula" and the data from the table below, compute where possible the own- price and income elasticities of demand. (remember that these elasticities are computed holding all other variables constant).
Price quantity price of related goods income
$10 600 $20 $ 16,000
$10 600 $30 $22,000
$12 500 $30 $22,000
$10 500 $20 $22,000
A. Compute owner price elasticity of demand?
B. Demand is -------- (elastic, inelastic, Unitary elastic)?
C. The cross price elasticity of demand= ------- ?
d. The related good is a------- ?
E. The income elasticity =------- /
F. The good is a ...... good?
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Solution Summary
Solution describes the steps to calculate price elasticity, cross elasticity and income elasticity of demand on the basis of data given. It predicts nature of good and related good based upon elasticities.
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Solution:
A. Compute owner price elasticity of demand?
Price quantity price of related goods income
$10 600 $30 $22,000
$12 500 $30 $22,000
Q1=60 Q2=500
P1=10 P2=12
Ep =
Where Ep = Coefficient of price elasticity
Q1 = original quantity ...
Education
- BEng (Hons) , Birla Institute of Technology and Science, India
- MSc (Hons) , Birla Institute of Technology and Science, India
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