Question 5: [5] Read the following scenario and answer the succeeding questions. Scenario 4: Suppose the average income of a consumer named Warren decrease from R18000 to R12000. As a result, the quantity of product A demanded by Warren increase from 200 units to 280 units. For scenario 4, answer the following questions: 5.1 Use the ARC (midpoint) formula to calculate the income elasticity of demand for product A given the information above. (3) 5.2 Based on your answer in 5.1, is product A an inferior good or a normal good? Substantiate your answer with reference to your calculated elasticity value.

Question 5: [5] Read the following scenario and answer the succeeding questions. Scenario 4: Suppose the average income of a consumer named Warren decrease from R18000 to R12000. As a result, the quantity of product A demanded by Warren increase from 200 units to 280 units. For scenario 4, answer the following questions: 5.1 Use the ARC (midpoint) formula to calculate the income elasticity of demand for product A given the information above. (3) 5.2 Based on your answer in 5.1, is product A an inferior good or a normal good? Substantiate your answer with reference to your calculated elasticity value.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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1) Elasticity of Demand: a) Define and calculate price elasticity of demand using the mid-point method. b) Discuss the determinants of price elasticity of demand and their impact on the degree of elasticity. 21 c) Provide real-world examples illustrating the concept of price elasticity of demand.
Suppose income increases by 25 percent and, as a result, the quantity of a particular brand of automobile demanded (holding the price for this particular automobile constant) increases by 39 percent. The income elasticity of demand for this brand of car is (Enter your response rounded to two decimal places and include a minus sign if appropriate.)
Qs.5: Fill in the blanks: 1. The co-efficient of Cross elasticity of demand for Pepsi and Coke will be............ 2. The co-efficient of income elasticity of demand for used tires is expected to be.......... 3. If the co-efficient of cross-elasticity of demand is negative 20, then the two goods are.... 4. If the co-efficient of income elasticity of demand is +10, then the goods are....... 5. Solve the following: Your budget is $10 The Price of good A = $2 The Price of good B= $3 The price of good C-= $5 Mu of good A=4 Mu of Good B=9 Mu of Good C= 20 How many items of good A can you buy?----- How many items of good B can you buy?---- How many items of good C can you buy?-
Price falls from $8.50 to $7.75, and the quantity demanded rises from 900 units to 970 units. What is the approximate coefficient of price elasticity of demand (Ed) between these two prices? 0.64 1.00 1.23 O 1.44 O 0.81
3) Cris, a dedicated employee at Google just found out that he will be recognized for the employee of the year award, plus an additional pay increase of 10%. He along with several top employees from other states rush to purchase Porsche 911 4S vehicles resulting in a 7% increase in the quantity demanded. What is Cris' income elasticity of demand for a Porsche 911 4S?
(2) Show graphically and explain intuitively why price elasticity of demand varies along a linear demand curve.
QUESTION 2 Replicas of popular mid-century furniture and homeware can be highly sought after by interior designers. Suppose a company sold 1000 replica Eames chairs for a price of $600 each. However, when they set the price at $750, they only sold 750. Which of the following statements are true: The point price elasticity of demand for replica Eames chairs at a price of $600 is unit elastic. At a price of $600 per chair, a 1% increase in the price of replica Eames chairs would lead to a 1% decrease in the quantity of chairs sold. The point price elasticity of demand for replica Eames chairs at a price of $600 is 0.0239 (to four decimal places). The point price elasticity of demand for replica Eames chairs at a price of $600 is 0.02 (to two decimal places).
4) Provide a simple definition of the price elasticity of demand and explain why knowing the price elasticity for her product is useful to the firm's manager.
*4* When the price of product "X" is (P1=) $42, Shyanne purchases 20 units of product "X" and when the price of product "X" is (P2=) $38, she purchases 30 units of product "X". Shyanne's "arc" price elasticity of demand for product "X" is (Ex,x =): O" -0.25 " and the demand for "X" is relatively elastic. -4.00 " and the demand for "X" is relatively inelastic. O"-0.25 " and the demand for "X" is relatively inelastic. O " -4.00 " and the demand for "X" is relatively elastic. -0.25 " and "X" is a "normal" good. Save & Continue Continue without saving
2. [Own Price Elasticity of Demand] Given a demand function Q=f(P), the own price elasticity of demand is defined as P - (de). (2). ε = What is the own price elasticity of demand e (a) for the linear demand function Q = 200-3.5P when P = 10. (b) for the linear inverse demand function P= 100-3.5Q when Q = 10. (c) for the inverse demand function P=Q-35, when (i) Q = 5; (ii) Q = 10.
3) Consider the following demand equation: Demand: QD = 80 – 5 P a) Suppose there is a price increase from S6 to $8. Calculate the clasticity of demand along the portion of the demand curve between $6 and S8. b) Suppose there is a price increase from $8 to $9. Calculate the elasticity of demand along the portion of the demand curve between $8 and $9. With respect to this linear demand equation, is the elasticity of demand constant?
Problem Solving (2) Using the data shown in the table below about demand, calculate the price elasticity of demand from point B to point C, point D to point E, and point G to point H. Classify the elasticity at each point as elastic, inelastic, or unit elastic. Points P. A 60 3,000 70 2,800 C 80 2,600 D 90 2,400 E 100 2,200 F 110 2,000 120 1,800 130 1,600 BSTM2001 CHAPTER (4) SLIDE (8)