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Homework answers / question archive /   Suppose that your demand schedule for pizza is as follows:   Price     Qty Demanded (income = $20,000)               Qty Demanded (income = $24,000) $8                           40 pizzas                                                                 50 pizzas 10                            32                                                                             45 12                             24                                                                             30 14                             16                                                                              20 16                              8                                                                               12 a

  Suppose that your demand schedule for pizza is as follows:   Price     Qty Demanded (income = $20,000)               Qty Demanded (income = $24,000) $8                           40 pizzas                                                                 50 pizzas 10                            32                                                                             45 12                             24                                                                             30 14                             16                                                                              20 16                              8                                                                               12 a

Economics

  Suppose that your demand schedule for pizza is as follows:

 

Price     Qty Demanded (income = $20,000)               Qty Demanded (income = $24,000)

$8                           40 pizzas                                                                 50 pizzas

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 pizza increases from $8 to $10 if (i) your income is $20,000 and (ii) your income is $24,000.

 

b.      Calculate your income elasticity of demand as your income increases from $20,000 to $24,000 if (i) the price is $12 and (ii) the price is $16.

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a) Computation of Price Elasticity of Demand using Midpoint Method:

Price Elasticity of Demand = ((Q2 - Q1)/((Q2+Q1)/2))/((P2 - P1)/((P2+P1)/2))

 

(i) your income is $20,000:

Price Elasticity of Demand = ((32- 40)/((32+40)/2))/(10- 8)/((10+8)/2))

= (-8/36) / (2/9)

= -0.2222/0.2222

= 1 

 

(ii) your income is $24,000:

Price Elasticity of Demand = ((45- 50)/((45+50)/2))/(10- 8)/((10+8)/2))

= (-5/47.5) / (2/9)

= -0.10526/0.2222

= -0.47

 

b) Computation of Income Elasticity of Demand using Midpoint Method:

Income Elasticity of Demand = ((Q2 - Q1)/((Q2+Q1)/2))/((I2 - I1)/((I2+I1)/2))

 

(i) The price is $12:

Income Elasticity of Demand = ((30- 24)/((30+24)/2))/(24000-20000)/((24000+20000)/2))

= (6/27) / (4000/22000)

= 0.2222/0.1818

= 1.22

 

(ii) The price is $16:

Income Elasticity of Demand = ((12- 8)/((12+8)/2))/(24000-20000)/((24000+20000)/2))

= (4/10) / (4000/22000)

= 0.4/0.1818

= 2.2

 

 

 

 

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