Question

thank you

Step 1

Answer 1:

Here, it given that, Y1 = $40 K, Y2 = $60 K, Q1 = 24 boxes, and Q2 = 6 boxes

where Y1, Y2 depicts the different incomes of consumer and Q1, Q2 depicts the different quantity demanded by consumers.

From this given information, it is easy to calculate the income elasticity of demand which measures the sensitivity of the quantity demanded for a good when the income of consumers changes (in percentage term).

a) Income elasticity of demand = Percentage (%) change in Quantity demanded / Percentage (%) change in income

Percentage (%) change in Quantity demanded = Q2 – Q1/ Q1 * 100

= 6-24/24 * 100

= -18/24 * 100

=- 75%

Percentage (%) change in income = Y2 – Y1/Y1 *100

= $60 K - $40K/ $40 K * 100

= $20 k / $40 K * 100

= 50%

Now, substitute the above calculated value in the income elasticity of demand equation, i.e.,

Income elasticity of demand = -75%/50%

= - 1.5

b) Thus, here we have estimated the income elasticity of demand.

c) The income elasticity of demand is – 1.5 which means the given good is an inferior good.

Step 2

Answer 2:

Here, it given that, P1 = $2 K, P2 = $5, Q1 = 4.2 million, and Q2 = 3.2 million

where P1, P2 depicts the different prices paid by consumer and Q1, Q2 depicts the different quantity demanded by consumers.

From this given information, it is easy to calculate the price elasticity of demand which measures the sensitivity of the quantity demanded for a good when the price of goods changes (in percentage term).

a) Price elasticity of demand = Percentage (%) change in Quantity demanded / Percentage (%) change in price

Percentage (%) change in Quantity demanded = Q2 – Q1/ Q1 * 100

= 4.2 million – 3.2 million / 4.2 million * 100

= 1 million/4.2 million * 100

&n...

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