# Price Quantity Demanded Quantity Demanded

Document Sample

```					Price         Quantity Demanded     Quantity Demanded
(income= 10,000)      (income =\$12,00)
\$8         40             50
10         32             45
12         24             30
14         16             20
16          8            12

a. Use midpoint method to calculate your price elasticity of demand as the price of
compact discs increases from \$8 to \$10 if (i)your income is 10,000 (ii) your income is
12,000.
b. Calculate your income elasticity of demand as your income increases from \$10,000
to \$12,00 if (i) the price is \$12 and (ii) the price is \$16.

Solution

(Q2  Q1 )
(Q2  Q1 )
Price Elasticity of Demand =      2
(P2  P1 )
(P2  P1 )
2

a-i) Income – 10,000:

(32  40)
(32  40)
2       0.222
Price Elasticity of Demand =                    1
(10-8)    0.222
(10  8)
2

a-ii) Income = 12,000:

(45  50)
(45+50)
2       0.105263
Price Elasticity of Demand =                       0.47368  0.47
(10-8)      0.222
(10  8)
2
(Q2  Q1 )
(Q2  Q1 )
Income Elasticity of Demand =     2
(Y2 Y 1 )
(Y2 Y 1 )
2

b-i) Price is \$12:

(30-24)
(30+24)
2         0.222
Income Elasticity of Demand =                         1.22
(12,000-10,000) 0.1818
(12,000+10,000)
2
b-ii) Price is \$16:

(12-8)
(12+8)
2         0.4
Income Elasticity of Demand =                        2.2
(12,000-10,000) 0.1818
(12,000+10,000)
2

```
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