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Homework answers / question archive / 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
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. Calculate the 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.
a. If income is $10,000, quantity demanded decline from 40 to 32 when price increases from 8 to 10. Using the mid-point method, the price elasticity is ((32 - 40)/((40 + 32)/2))/((10 - 8)/((10 + 8)/2)) = -1.
If income is $12,000, quantity demanded decline from 50 to 45 when price increases from 8 to 10. Using the mid-point method, the price elasticity is ((45 - 50)/((45 + 50)/2))/((10 - 8)/((10 + 8)/2)) = -0.47.
b. If price is 12, quantity demanded increases from 24 to 30 when income increases from $10,000 to $12,000. Using the mid-point method, the income elasticity is ((30 - 24)/((30 + 24)/2))/((12,000 - 10,000)/((12,000 + 10,000)/2)) = 1.22.
If price is 16, quantity demanded increases from 8 to 12 when income increases from $10,000 to $12,000. Using the mid-point method, the income elasticity is ((12 - 8)/((12 + 8)/2))/((12,000 - 10,000)/((12,000 + 10,000)/2)) = 2.2.
