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.

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?

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)