Question

Suppose you have the following data on market conditions in Sovereign Centre for the months of July and August.

Month	Price of Paperback Books	Quantity demanded of books	Price of Movies	Quantity Demanded of Movies	Income
July	$20	4000	$8.00	10,000	$25,000
August	$18	4500	$8.00	9,500	$28,000

Using the data shown in the table to complete the following

(only use the mid-point formula for elasticity calculations and show all workings)

A. Use and demand and supply graph for movie tickets to show the effects of an increase in the price of paperback books on the equilibrium price and quantity for movies tickets.

B. Given the increase in consumer income from $25,000 to $28,000 calculate the income elasticity of demand for movies and interpret your result

C. Given the consumer income and prices of paperback books and moves in the month of JULY

i. Algebraically formulate the consumers budget constraint

ii. Illustrate the consumer budget lines show how the decrease in the price of paperback books from $20 to $18 affect the budget.

iii. Given prices remain constant explain the how the change in consumer’s income from $25,000 to $28,000 will affect the slope of the budget line.

Answer 1