Microeconomics:
Microeconomics:
4th Edition
ISBN: 9781464143878
Author: Paul Krugman
Publisher: Worth Publishers
Question
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Chapter 6, Problem 7P
To determine

To Calculate:

  1. The elasticity of demand by using the midpoint method, when the price rises from $5 to $6 with an average tourist income of $20,000. Carry out the same calculation for the average tourist income of $30,000.
  2. The income elasticity of demand by using the midpoint method when price of T-shirts is $4 and the average tourist income rises from $20,000 to $30,000. Carry out the same calculation when the price is $7.

Concept Introduction:

Price Elasticity of Demand:

The percentage change of quantity demanded in response to percentage change in price

Income Elasticity of Demand:

The percentage change of quantity demanded in response to percentage change in income

Mid-point Method:

If X is a variable, then percentage change of X using mid-point method is (New value of X − Old Value of X)/ Average value of X

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