3. Look over your previous monthly income and spending habits. Pick a good that
ID: 1139555 • Letter: 3
Question
3. Look over your previous monthly income and spending habits. Pick a good that you can determine your income elasticity. Hint: Pick two different months where your income was different and pick a good that you spent money on in both of those months. If you cannot find two months where you had different incomes and spent money on the same good, then use one month from yourself and another month from a friend. If you do not have income, try to use your parents income or make up some numbers. It might be easy to pick money spent on gasoline, meals at Taco Mama, beverages from Rounders as your good. a. What is the date of your first month? b. How much was your income in the first month? c. What good did you spend money on and how much did you spend that month? d. What is the date of your second month? e. How much was your income in the second month? f. How much did you spend that month on the same good from (c): g. What is your income elasticity? h. Is the good normal or inferior? A necessity or a luxury? Why?Explanation / Answer
a. the starting date of the first month is the first day that is the date 1.
b. the income of the first month is $25000
c. the good analysed is the accessories purchased during the month and spend $1800 on purchasing accessories. (quantity 18)
d. the day one is the date of the second month
e. the income of the second month is $ 27000
f. spend $2000 on accessories in the second month (quantity 20)
g. income elasticity of demand is 1.38
income elasticity of demand = percentage change in quantity / percentage change in income
percentage change in income.
percentage change in quantity = 20-18/18*100 = 11.11
percentage change in income = 27000-25000/25000*100 = 8
income elasticity = 11.11/8 = 1.38
h. it is a luxury good because the income elasticity of demand for that particular good(accessories) is greater than 1.
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