Suppose that your
Price | Quantity Demanded (income = $10,000) | Quantity Demanded (income = $12,000) |
$8 | 40 DVDs | 50 DVDs |
10 | 32 | 45 |
12 | 24 | 30 |
14 | 16 | 20 |
16 | 8 | 12 |
- a. Use the midpoint method to calculate your price elasticity of demand as the price of DVDs increases from $8 to $10 if (i) your income is $10,000 and (ii) your income is $12,000.
- b. Calculate your income elasticity of demand as your income increases from $10,000 to $12,000 if (i) the price is $12 and (ii) the price is $16.
Subpart (a):
Explanation of Solution
- (i) If the income is $10,000, then the price of pizza rises from $8 to $10, and the quantity demanded decreases from 40 to 32. By midpoint method, the price elasticity of demand is calculated as follows:
The price elasticity of demand for pizza is -1.
- (ii) If the income is $12,000, then the price of pizza rises from $8 to $10, and the quantity demanded decreases from 50 to 45. By midpoint method, the price elasticity of demand is calculated as follows:
The price elasticity of demand for pizza is -0.5.
Concept Introduction:
Price elasticity of demand: Price elasticity of demand refers to the percentage change in the demand for goods and services due to change occurred in the price level.
Subpart (b):
Explanation of Solution
- (i) If the price is $12 and an income increases from $10,000 to $24,000, then the quantity demanded increases from 24 to 30. By midpoint method, the income elasticity of demand is calculated as follows:
The income elasticity of demand for pizza is 1.22.
- (ii) If the price is $12 and an income increases from $20,000 to $24,000, then the quantity demanded increases from 24 to 30. By midpoint method, the income elasticity of demand is calculated as follows:
The income elasticity of demand for pizza is 2.22.
Concept Introduction:
Income elasticity of demand: It measures how much quantity demanded of a good responds to the change in consumers’ income.
Want to see more full solutions like this?
Chapter 5 Solutions
Principles Of Microeconomics 7th Edition
- 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.arrow_forwardSuppose a movie theater raises the price of popcorn 10 percent, but customers do not buy any less popcorn. What does this tell you about the price elasticity of demand? What will happen to total revenue as a result of the price increase?arrow_forwardEstimates presented in Exhibit 5 show that Android users have a higher price elasticity of demand for apps in the Google Play Store than do iPhone users in the Apple App Store. Why might Android users tend to be more sensitive to app prices than iPhone users? What categories or types of apps (for example, games/social media) do you think have the highest price elasticities?arrow_forward
- (Calculating Price Elasticity of Demand) Suppose that 50 units of a good are demanded at a price of Si per unit. A reduction in price to $0.20 results in an increase in quantity demanded to 70 units. Using the midpoint formula, show that these data yield a price elasticity of 0.25. By what percentage would a 10 percent rise in the price reduce the quantity demanded, assuming price elasticity remains constant along the demand curve?arrow_forwardProve that price elasticity of demand is not the same as the slope of a demand curve.arrow_forward(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 __________.arrow_forward
- Principles of MicroeconomicsEconomicsISBN:9781305156050Author:N. Gregory MankiwPublisher:Cengage LearningEssentials of Economics (MindTap Course List)EconomicsISBN:9781337091992Author:N. Gregory MankiwPublisher:Cengage Learning