Question

17. Given the following information will this good be price elastic or price inelastic? Income elastic...

17. Given the following information will this good be price elastic or price inelastic? Income elastic or income inelastic? Explain why but no need to calculate the elasticities involved

Quantity demanded

Price is $20

25

Price is $40

20

Income is $40,000

15

Income is $80,000

20
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Answer #1

The demand is said to be price elastic when a percentage change in price leads to a greater percentage change in demand. When the percentage change in demand is less than that of the percentage change in price, the demand is price inelastic.

Percentage change in price is 100%.

Percentage change in quantity is less than 100%. Hence the demand is inelastic.

When due to a percentage change in income, the percentage change in demand is greater, demand is income elastic, otherwise income inelastic.

The income doubled, that is increased by 100%.

The demand did not double, that is demand increased by less than 100%.

The demand is therefore income elastic.

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