For each scenario, calculate the income elasticity of demand, determine whether the good is inferior or...

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business economics

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Answer 1

Answer #1

Answer 1:

➡️Income elasticity of demand for VACATION.

=(Q2-Q1) /[(Q2+Q1) /2] ÷ (Y2-Y1) /[(Y2+Y1) /2]

=(4-3)/[(4+3)/2] ÷(109500 - 100500)/[(109500+100500)/2]

=1/3.5 ÷ [9000/105000]

=0.29/0.086

=3.37

➡️VACATIONS ARE. . . .

Answer : elastic

Explanation : if income elasticity is more than 1, it is elastic...... But if it is less than 1 than it is inelastic.... So here the income elasticity is more than one.. SO IT IS ELASTIC.

➡️AS A GOOD VACATIONS ARE....

Answer : it is a normal good.

Explanation: if good is normal, by increase in income raises the quantity demanded. Becouse quantity demanded and income moves in the same direction .. So it is a normal good.

Answer 2:

➡️Income elasticity of demand for GENERIC CHIPS

=(Q2-Q1) /[(Q2+Q1) /2] ÷ (Y2-Y1) /[(Y2+Y1) /2]

=(1-2)/[(1+2)/2] ÷ (15-8.75)/[(15+8.75)/2]

= - 1/1.5 ÷ 6.25/11.875

=- 0.67/ 0.53

= - 1.26

➡️ Generic potato chips are....

Answer : Elastic

Explanation : becouse here the income elasticity of demand is greater than one.

➡️As a good generic potato chips are...

Answer : inferior good.

Explanation:

Here, by increase in income, the quantity demand for the generic potato chips falles, so it is the inferior good. In the case of inferior goods higher the income lowers the demanded. Because the quantity demanded of inferior goods and income move in opposite direction.

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