Question

he average consumer's income has vehicles they will sell for the Question 4: Since the economy has been in a recession, the average consumer's in cone from $44.375 to $41.720. Before the recession, XYZ Auto Row was selling a 600 vehicles per month. As an economist, predict the number of vehicles they will selle following income elasticities, and explain what type of good automobiles are in the consumers (you must use explain what the elasticity coefficient means) A. E,= 1.5 B. E, =.5 C. E = -2

Answer 1

Questione Due to recession, the awnage consma's income has gone from $44, 375 to $41,720, ie here I= $44, 375 and IF $ 41,720 Now, A) EI = 1,5 of change in quantity demanded % change is incone income elasticity We know (@z-Qi) x 10 QI TIL - Il ) XIDO Q1 = 600 Vohicles pu month the 1Q2-600 x 100 600 T41720-44375)x100 Hace . . Es = 1.5 44.375 (Q2-600) 600 -) is = -0.06. (Q2 - 600 . . =;-0.09 - Q2-600] :-) - 54 - Q2 - 600 2 - 54 + 600 = Q2 =? Q2 = 546 He as income elasticity of demaid EI = los is positive, automobiles are normal goods in the eyes of consueus and as income falls from $44, 375 to $41, 720 bers of vent vehicks sold falls from 600 vehicles Pumonty

to 546 vehicles pu month D EI = 5 (Q2-Q1) X 100 Q : (Is - Il)x100 Ii > O.. - (Q2 -600x100 _ .600 (4.720 - 4 4 315 3,0 44375 (Q2-600 - -0.06 (Q2-600) =) OS = =) - 0.03 = 600 =) -18 - Q2 - 600 s) Qz = 582 . - % change in into quantity denaded ... He in come elasticity which is a a % change i in come . i positive i.c.ois, hence as automobiles are - normal goods in the eyes of consues and hence as the income declius from $44375 to $41720 sumbn of vehicks sold decling from 600 vehicks pu Tos month to 582 vehicles pu month. Scanned with CamScanner

I E3= -2 (Q2-01) x100 Qu (I2-I) x 100 Q2-600)x100 Il 5) -2 = 680 141720-44 375x100 . 44375 (Q2-600) -X100 3) :-2: -0006 s) 0.12 = 2z - Gm 2.2) : 72 =..Q₂ - 600 s 672 = Q2.-) Q2 = 672 the as in come elasticity of nego demand is -2 which is negative, hence as income falls demand for automobiles inuearn or automobiles are üfunior goods in the eyes of conswers and hence as the income de clins from $44 375 to $ 41720 new bu. of. Vehicles sold increases from .600 vehicles Pu month to 672 Vehicles pu month. Scanned with CamScanner