Bundle: Principles of Microeconomics, Loose-Leaf Version, 7th + Aplia, 1 term Printed Access Card
Bundle: Principles of Microeconomics, Loose-Leaf Version, 7th + Aplia, 1 term Printed Access Card
7th Edition
ISBN: 9781305135444
Author: N. Gregory Mankiw
Publisher: Cengage Learning
bartleby

Videos

Textbook Question
Book Icon
Chapter 5, Problem 6PA

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
  1. 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.
  2. 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.

Subpart (a):

Expert Solution
Check Mark
To determine
Calculating the price elasticity of demand.

Explanation of Solution

  1. (i) If the income is $10,000, then the price of pizza rises from $8 to $10, and the quantity demanded decreases from 40 to 32. By midpoint method, the price elasticity of demand is calculated as follows:

Price elasticity of demandIncome $20,000=QuantityPresentQuantityPreviousQuantityPresent+QuantityPrevious2PricePresentPricePreviousPricePresent+PricePrevious2=3240(32+402)108(10+82)=8(36)2(9)=0.22220.2222=1

The price elasticity of demand for pizza is -1.

  1. (ii) If the income is $12,000, then the price of pizza rises from $8 to $10, and the quantity demanded decreases from 50 to 45. By midpoint method, the price elasticity of demand is calculated as follows:

Price elasticity of demandIncome $24,000=QuantityPresentQuantityPreviousQuantityPresent+QuantityPrevious2PricePresentPricePreviousPricePresent+PricePrevious2=4550(45+502)(108)((10+8)2)=547.529=0.110.22=0.5

The price elasticity of demand for pizza is -0.5.

Economics Concept Introduction

Concept Introduction:

Price elasticity of demand: Price elasticity of demand refers to the percentage change in the demand for goods and services due to change occurred in the price level.

Subpart (b):

Expert Solution
Check Mark
To determine
Calculating the income elasticity of demand.

Explanation of Solution

  1. (i) If the price is $12 and an income increases from $10,000 to $24,000, then the quantity demanded increases from 24 to 30. By midpoint method, the income elasticity of demand is calculated as follows:

Income elasticity of demandPrice $12=QuantityPresentQuantityPreviousQuantityPresent+QuantityPrevious2IncomePresentIncomePreviousIncomePresent+IncomePrevious2=3024(30+242)12,00010,000(12,000+10,0002)=6272,00011,000=0.22220.1818=1.22

The income elasticity of demand for pizza is 1.22.

  1. (ii) If the price is $12 and an income increases from $20,000 to $24,000, then the quantity demanded increases from 24 to 30. By midpoint method, the income elasticity of demand is calculated as follows:

Income elasticity of demandPrice $16=QuantityPresentQuantityPreviousQuantityPresent+QuantityPrevious2IncomePresentIncomePreviousIncomePresent+IncomePrevious2=128(12+82)12,00010,000(12,000+10,0002)=4102,00011,000=0.4×112=2.2

The income elasticity of demand for pizza is 2.22.

Economics Concept Introduction

Concept Introduction:

Income elasticity of demand: It measures how much quantity demanded of a good responds to the change in consumers’ income.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!
Students have asked these similar questions
Should Maureen question the family about the history of the home? Can Maureen access public records for proof of repairs?
3. Distinguish between a direct democracy and a representative democracy. Use appropriate examples to support your answers. [4] 4. Explain the distinction between outputs and outcomes in social service delivery [2] 5. A R1000 tax payable by all adults could be viewed as both a proportional tax and a regressive tax. Do you agree? Explain. [4] 6. Briefly explain the displacement effect in Peacock and Wiseman's model of government expenditure growth and provide a relevant example of it in the South African context. [5] 7. Explain how unbalanced productivity growth may affect government expenditure and briefly comment on its relevance to South Africa. [5] 8. South Africa has recently proposed an increase in its value-added tax rate to 15%, sparking much controversy. Why is it argued that value-added tax is inequitable and what can be done to correct the inequity? [5] 9. Briefly explain the difference between access to education and the quality of education, and why we should care about the…
20. Factors 01 pro B. the technological innovations available to companies. A. the laws that regulate manufacturers. C. the resources used to create output D. the waste left over after goods are produced. 21. Table 1.1 shows the tradeoff between different combinations of missile production and home construction, ceteris paribus. Complete the table by calculating the required opportunity costs for both missiles and houses. Then answer the indicated question(s). Combination Number of houses Opportunity cost of houses in Number of missiles terms of missiles J 0 4 K 10,000 3 L 17,000 2 1 M 21,000 0 N 23,000 Opportunity cost of missiles in terms of houses Tutorials-Principles of Economics m health care
Knowledge Booster
Background pattern image
Economics
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.
Similar questions
SEE MORE QUESTIONS
Recommended textbooks for you
Text book image
Microeconomics A Contemporary Intro
Economics
ISBN:9781285635101
Author:MCEACHERN
Publisher:Cengage
Text book image
Essentials of Economics (MindTap Course List)
Economics
ISBN:9781337091992
Author:N. Gregory Mankiw
Publisher:Cengage Learning
Text book image
Principles of Microeconomics
Economics
ISBN:9781305156050
Author:N. Gregory Mankiw
Publisher:Cengage Learning
Text book image
Micro Economics For Today
Economics
ISBN:9781337613064
Author:Tucker, Irvin B.
Publisher:Cengage,
Text book image
Survey Of Economics
Economics
ISBN:9781337111522
Author:Tucker, Irvin B.
Publisher:Cengage,
Text book image
Economics:
Economics
ISBN:9781285859460
Author:BOYES, William
Publisher:Cengage Learning
How To Understand Elasticity (Economics); Author: Market Power;https://www.youtube.com/watch?v=1XXhpHJTglg;License: Standard Youtube License