# Calculating Price, Cross, Income Elasticity of demand

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:

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.