In your country, the demand curve of a litre of petrol is given by: P = 124 - 3QD. Due to political unrest coupled with the slow recovery from pandemic, the global price of petrol surged which led to an increase of price per litre of petrol in your country from TK58 to TK88. After the price rise, the employees of the company you work for demanded a pay-raise. Your employer, hence, increased your income from 32954 taka to 42762 taka. The new demand curve at the new income level is P = 139 - 3QD.   i. Calculate the income elasticity of demand (YED). ii. Now assume that the increase in income (and the subsequent shift of the demand curve) had occured before the rise in price, then what would the YED be?

Understanding Business
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ISBN:9781259929434
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In your country, the demand curve of a litre of petrol is given by: P = 124 - 3QD.

Due to political unrest coupled with the slow recovery from pandemic, the global price of petrol surged which led to an increase of price per litre of petrol in your country from TK58 to TK88.

After the price rise, the employees of the company you work for demanded a pay-raise. Your employer, hence, increased your income from 32954 taka to 42762 taka. The new demand curve at the new income level is P = 139 - 3QD.

 

i. Calculate the income elasticity of demand (YED).

ii. Now assume that the increase in income (and the subsequent shift of the demand curve) had occured before the rise in price, then what would the YED be?

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