   Chapter 5, Problem 6PA

Chapter
Section
Textbook Problem

Suppose that your demand schedule for DVDs is as follows: 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): To determine Calculating the price elasticity of demand. Explanation 1. (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:

Price elasticity of demandIncome \$20,000=QuantityPresentQuantityPreviousQuantityPresent+QuantityPrevious2PricePresentPricePreviousPricePresent+PricePrevious2=3240(32+402)108(10+82)=8(36)2(9)=0.22220.2222=1

The price elasticity of demand for pizza is -1

Subpart (b):

To determine
Calculating the income elasticity of demand.

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