Suppose that your demand schedule for dvds is as follows:

Asked by maham237 @ in Business viewed by 386 People

Suppose that your demand schedule for dvds is as follows: price quantity demanded (income = $10,000) quantity demanded (income = $12,000) $8 40 dvds 50 dvds 10 32 45 12 24 30 14 16 20 16 8 12
a. use the midpoint method to calculate your price elasticity of demand as the price of dvds increases from $8 to $10 if (i) your income is $10,000 and (ii) your income is $12,000.
b. calculate your income elasticity of demand as your income increases from $10,000 to $12,000 if (i) the price is $12 and (ii) the price is $16.

Answered by maham237 @


Answer:

a. i) Price elasticity when income is $10,000 is 1

ii) Price elasticity when income is $12,000 is 0.5

b). i). Income elasticity when P=$12 is 1.22

ii). Income elasticity when P=$16 is 2.2

Explanation:

a.

i). When income is $10,000

e = \frac{Change in Quantity}{Avg. Quantity} * \frac{Avg Price}{Change in Price}

e = \frac{-8}{36} * \frac{9}{2}

e= -1


ii). When income is $12,000

e = \frac{Change in Quantity}{Avg. Quantity} * \frac{Avg Price}{Change in Price}

e = \frac{-5}{47.5} * \frac{9}{2}

e= -0.47

e= 0.5 approx

b. i). Price is $12, income elasticity is given by,

Income elasticity= \frac{Change in Quantity}{Avg. Quantity} * \frac{Avg Income}{Change in Income}[/tex]

e = \frac{6}{27} * \frac{11,000}{2,000}

e= 0.22*5.5

e= 1.21

e=1.22 approx

ii). Price is $16, income elasticity is given by,

Income elasticity= \frac{Change in Quantity}{Avg. Quantity} * \frac{Avg Income}{Change in Income}[/tex]

e = \frac{4}{10} * \frac{11,000}{2,000}

e= 0.4*5.5

e= 2.2



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