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A statistician estimates a demand curve for visits per year to the health club: Qd =...

A statistician estimates a demand curve for visits per year to the health club:

Qd = 50 – 10p + 0.5 y,

where p is the price of towels per visit (in dollars) and y is household income (in thousands of dollars). There are two groups of users. Group A has a mean income of $40 (thousand), and group B has a mean income of $80 (thousand). Members of both groups must pay $2 per towel each time they visit.

(1) The calculated quantities demanded are: Income Expenditure a slope = b 3

(2) Calculate the towel price elasticity for group A members and group B members, separately. Indicate whether it is elastic or inelastic. Which group has relatively more elastic demand for towel?

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