Question

As a consultant for Maui Surf Shop you determine that the demand for custom made surfboards depends on income according to q=0.006e^(−0.05x^2+x) where x is the income of a potential customer in tens of thousands of dollars and q is the probability that a person will actually purchase a custom made surfboard.

Determine the income elasticity of demand for potential customer A with an annual income of $80,000 E=

Determine the income elasticity of demand for potential customer B with an annual income of $90,000. E=

Given a 1% increase in annual income, which customer is more likely to decide to purchase a custom made surfboard?

• Customer B
• Neither
• Customer A

Answer 1