Question

Q1: The following table shows average income of buyers, the price of good G, the price of good H, the quantity demanded (Q^D) of good G and the quantity demanded (Q^D) of good H for 5 periods. Use the information in the table to answer the following questions. Do not round your answers early because your final results will be less accurate.

Period	Average Income	Price of Good G	Price of Good H	QD of Good G	QD of Good H
1	$40,000	$10	$12	4960 units	2360 units
2	$40,000	$8	$9	4820 units	2560 units
3	$48,000	$8	$12	5860 units	1800 units
4	$48,000	$8	$9	5620 units	2160 units
5	$48,000	$10	$9	5520 units	2320 units

a) What does the cross-price elasticity of demand for good G equal (to 3 decimal places)? Show clearly how you arrived at your answer. If Fulton has to figure out how you arrived at your answer, marks will be deducted. 3 marks.

b) What does the income elasticity of demand for good H equal (to 3 decimal places)? Show clearly how you arrived at your answer. If Fulton has to figure out how you arrived at your answer, marks will be deducted. 3 marks.

Answer 1

a) Cross price elasticity of good G = %change in quantity demanded of good G / %change in price of H

Period	Qd of good G	Price of good H	%change in quantity demanded of good G	%change in price of H	Cross price elasticity of demand
1	4960	12	-	-	-
2	4820	9	-2.8%	-25.0%	0.113
3	5860	12	21.6%	33.3%	0.647
4	5620	9	-4.1%	-25.0%	0.164
5	5520	9	-1.8%	0.0%	Undefined

b) Income elasticity of demand for good H = %change in quantity demanded of good H / %change in income

Period	Qd of good H	Average Income	%change in quantity demanded of good H	%change average Income	Income elasticity of demand of good H
1	2360	40000	-	-	-
2	2560	40000	8.5%	0.0%	Undefined
3	1800	48000	-29.7%	20.0%	-1.484
4	2160	48000	20.0%	0.0%	Undefined
5	2320	48000	7.4%	0.0%	Undefined