Suppose the price of good x has increased from Php5 to Php10 per unit. Using the illustration below (see attached image), compute the price elasticity of demand using the midpoint elasticity formula. Is the demand for the good elastic, inelastic or unitary elastic? 1. A 20 percent increase in Ramon’s income brings about a 30 percent decrease in the demand for locally made shoes. What is the income elasticity of demand? Is the good a normal good or an inferior good? Explain briefly your answer
Suppose the price of good x has increased from Php5 to Php10 per unit. Using the illustration below (see attached image), compute the
1. A 20 percent increase in Ramon’s income brings about a 30 percent decrease in the demand for locally made shoes. What is the income elasticity of demand? Is the good a normal good or an inferior good? Explain briefly your answer.
2. Suppose a person with an income of $20,000 per year buys 10,000 oranges per year at a price of $1 per orange. When the person’s income rises to $25,000, he or she buys 12,000 oranges per year at the same price per orange. What is the implied income elasticity of demand for oranges? Are oranges a normal good or an inferior good? A necessity or a luxury? Note: Use the Midpoint Elasticity Formula.
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