The income of a person is Rs.8000 and he uses 60 units of a commodity. Calculate income elasticity of demand when the income increased by 30% and consumption of the good is declined by 50%. Also, calculate New income New consumption Nature of good

The income of a person is Rs.8000 and he uses 60 units of a commodity. Calculate income elasticity of demand when the income increased by 30% and consumption of the good is declined by 50%. Also, calculate New income New consumption Nature of good

Essentials of Economics (MindTap Course List)

8th Edition

ISBN:9781337091992

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter5: Elastic And Its Application

Section: Chapter Questions

Problem 7PA: Suppose that your demand schedule for pizza is as follows: a. Use the midpoint method to calculate...

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Concept explainers

Normal and Inferior Goods

Understanding a normal good and an inferior good is important because it tells us what will happen to demand different products during booms and recessions.

Question

The income of a person is Rs.8000 and he uses 60 units of a commodity.

Calculate income elasticity of demand when the income increased by 30% and consumption of the good is declined by 50%.

Also, calculate

New income
New consumption
Nature of good

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(Other Elasticity Measures) Complete each of the following sentences: a. The income elasticity of demand measures, for a given price, the __________ in quantity demanded divided by the __________ income from which it resulted. b. If a decrease in the price of one good causes a decrease in demand for another good, the two goods are __________. c. If the value of the cross-price elasticity of demand between two goods is approximately zero, they are considered __________.
Economists define normal goods as having a positive income elasticity. We can divide normal goods into two types: Those whose income elasticity is less than one and those whose income elasticity is greater than one. Think about products that would fall into each category. Can you come up with a name for each category?
Income Effects depend on the income elasticity of demand for each good limit you buy. If one of the goods you buy has a negative income elasticity, that is, it is an inferior good, what must be true of the income elasticity of the other good you buy?
Using the following equation for the demand for a good or service, calculate the price elasticity of demand (using the point form), cross-price elasticity with good x and income elasticity. Q=82P+0.10I+Px Q is quantity demanded, P is the product price. P1 is the price of a related good, and I is income. Assume that P= $10, I = 100, and Px = 20.