Question

Consumer elasticity Solve and evaluate the type of consumer elasticity. Please include computations. 1. Solve and identify (if it is clastic, inelastic or unit demand) the coefficient of the price elasticity of demand, if 1.1 Q, = 5 P1 = $6 Q2 = 12 P2 = $2 1.2 Q1 = 10 P1 = $6 Q2 = 3 P2 = $18 1.3 Q. = 40 P = $8 Q2 = 60 P2 = $12 2. Solve and identify (if they are luxury goods, normal or inferior) the coefficient of income elasticity, if: 2.1 Q1 = 5 1 = $4 Q2 = 11 b = $8 2.2 Q1 = 2 1 = $10 Q2 = 15 12 = $5 2.3 Q1 = 4 h = $3 Q2 = 14 b = $17 3. Solve and identify (if they are substitute, complementary or independent goods) the coefficient of cross elasticity for a good X and a good "Y", if: 3.1 Qx1 = 3 Py1 = $8 0,2 = 10 Pyz = $15 32 Qx1 = 850 Py1 = $1 Q2 = 849 Py2 = $105 3.3 Q1 = 20 Q,2 = 8 Pyz = $14 Py1 = $6

Answer 1

Answer to the last question is done after skipping a step of calculation due to lack of time. sorry for the inconvenience.

ANSWERS:

Question No. 1

1.1 Ed = (Q1-Q2)/(Q1+Q2)    = (5 -12)/ (5+12)   =      - 7/17    =    -0.41176 = -0.823

         (P1-P2)/(P1+P2)           (6-2) /(6+2)              4/8            0.5

Therefore, the demand is inelastic.

1.2 Ed = (Q1-Q2)/(Q1+Q2) = (10-3)/ (10+3) =    7/13     =         0.5384 = -1.076

     (P1-P2)/(P1+P2)         (6-18) /(6+18)      -12/24                   -0.5

Therefore, the demand is elastic.

1.3 Ed = (Q1-Q2)/(Q1+Q2)   = (40-60)/ (40+60) =    -20/100     =            0.2 = 1

     (P1-P2)/(P1+P2)         (8-12) /(8+12)              -4/20                     -0.2

Therefore, the demand is unitary elastic.

Question No.2

2.1 Ey     =       (Q2-Q1)/Q1 =            (11-5)/5   =      6/5   =             1.2     =            2.4

            (Y2-Y1)/Y1                (8-4)/4             2/4                   0.5

Therefore, the good is a luxury good.

2.2 Ey     =       (Q2-Q1)/Q1 =            (15-2)/2 =          13/2   =        6.5     =            -13

            (Y2-Y1)/Y1                (5-10)/10            -5/10             -0.5

Therefore, the good is a inferior good.

Ey     =             (Q2-Q1)/Q1 =            (14-4)/4 =          10/4   =        2.5     =            0.536

            (Y2-Y1)/Y1                (17-3)/3              14/3              4.66

Therefore, the good is a necessary good.

Question No. 3

3.1 Cross Elasticity of Demand = (price₁A + price₂A) / (quantity₁B + quantity₂B) * ΔquantityB / ΔpriceA

                                                = 6

Therefore, the goods are substitute goods.

3.2 Cross Elasticity of Demand = (price₁A + price₂A) / (quantity₁B + quantity₂B) * ΔquantityB / ΔpriceA

                                                = -.0006

Therefore, the goods are complementary goods.

3.3 Cross Elasticity of Demand = (price₁A + price₂A) / (quantity₁B + quantity₂B) * ΔquantityB / ΔpriceA

                                                = -1.07

Therefore, the goods are complementary goods.