Explore BrainMass
Share

Explore BrainMass

    Calculating Price, Cross, Income Elasticity of demand

    This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

    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?

    © BrainMass Inc. brainmass.com October 9, 2019, 10:39 pm ad1c9bdddf
    https://brainmass.com/economics/elasticity/calculating-price-cross-income-elasticity-of-demand-227712

    Solution Preview

    Please refer attached file for complete solution. Work done with the help of equation writer may not print here.

    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 ...

    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.

    $2.19