Question

Lorena likes to play golf. The number of times per year that she plays depends on both the price of playing a round of golf as well as Lorena's income and the cost ofother types of entertainment-in particular, how much it costs to go see a movie instead of playing golf. The three demand schedules in the table below show how many rounds of golf per year Lorena wil demand at each price under three different scenarios. In s also $60,000 per year but the price of seeing a movies1aAnd goes up to $80,000 per year, while movies cost st in scenario D3. Lorena's income Scenario D1 D3 600 Income per year Price of movie ticket 13 Quantity Deman Price of Golf $60 $45 $30 de 15 25 40 115 30 50 10 15 numbers be sure to Instructions: Round your answers to 2 decimal places. If you are entering any negative include a negative sign (-) in front of those numbers. a. Using the data under Di and D2. calculate the cross elasticity of Loren prices. (To do this, apply the midpoints approach to the cross elasticity of demand) At $60, cross elasticity At $45. cross elasticity At $30, cross elasticity demand for golf at all three s the cross elasticity the same at all tree prices(Cick to selech Are movies and solt sutbattute poods,.compiementany ooods or ndependent goo (Click to select) CTEA 13 RED b Using the data under D2 and Da, caiculate the income elasticity of Lorena's demand for gol b.

Answer 1

Cross-price elasticity measures the responsive in quantity demanded of one good due to change in the price of other good. % change in quantity of good x cross price elasticity %change in price of good y 2 2 Q- X Here, x is golf and y is movie. а. find the cross elasticity at $60. % change in quantity of good golf cross price elasticity = %change in price of good movie 10-15 13+11 13-11 10+15 -5 24 = _X 2 25 -120 = 50 -2.4 Thus, cross price elasticity is -2.4 find the cross elasticity at $45

% change in quantity of good golf cross price elasticity %change in price of good movie 15-25 1311 X 13-11 15 25 -10 24 -X = 40 -240 80 Thus, cross price elasticity is -3 find the cross elasticity at $30. % change in quantity of good golf cross price elasticity %change in price of good movie 20-40 13+11 X 13-11 20+40 -20 24 2 60 -480 120 Thus, cross price elasticity is -4 Thus, cross elasticities are different Since the cross elasticity is negative, two goods are complementary to each other. Income elasticity measures the responsive in quantity demanded of one good due to change in the income

% change in quantity of good x income elasticity %change in income 2-0 Q2+Q I3-1 I+ 2 Q2-I+1 I- + X Find the income elasticity at $60 % change in quantity of good x %change in income income elasticity $60000+ $80000 15-10 80000 60000 15+10 $140000 20000 25 700000 500000 1.4 Thus, income elasticity is 1.4 Find the income elasticity at $45

% change in quantity of good x income elasticity %change in income 30-15 $80000+$60000 80000-60000 30+15 $140000 15 20000 45 2100000 900000 2.33 Thus, income elasticity is 2.33 Find the income elasticity at $45. % change in quantity of good x income elasticity %change in income 50-20 $80000+$60000 X 80000 60000 50+20 30 $140000 20000 70 4200000 1400000 3 Thus, income elasticity is 3 Thus, Income elasticities are different Since the income elasticity is positive, golf is a normal good.