Please answer #2 and #3 Elasticity Participation Activity gn Layout References M

Question

Please answer #2 and #3 Elasticity Participation Activity gn Layout References Mailings Review View AaBbCcDdE AaBb Normal No Sp Given Income and consumer demand expenditure in table below, for which product does the consumer have an Income elasticity of demand greater than zero but less than one? What type of product is this based on the income elasticity? 2. 100 Income in thousands USS 40 PRODUCT A PRODUCT B 50 10 20 3. The price of a product (PRODUCT X) rises by 20%. As a result, the demand for another product (PRODUCT Y) rises by 10%. what is the crossprice elasticity for Good Y with respect to good X3 What type of Product in terms of cross-price elasticity is PRODUCT Y and PRODUCT x

Explanation / Answer

2) Income elasticity is measured by em = %change in Qd/% change in Income

For product A, em = (8 - 10)*100/10 divided by (50 - 10)*100/50 = -0.3

For product B = em = (11 - 10)*100/10 divided by (50 - 10)*100/50 = 0.1

Hence, it is product B for which the income elasticity lies between 0 and 1. Since income elasticity is

positive, this is a normal good. A normal good is the one whose consumption is increased when

income of the consumer is increased.

3) Cross price elasticity = 10%/20% = 0.5. Since CPE is positive, we suggest that the two products are substitutes. This is because for substitutes, the cross price elasticity is positive,

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