Question

PRICE (5) མ ་ འདས་པ་དང་ལས་ QUANTITY DEMANDED (INcoME 30,000) 40 ། 32 QUANTITY DEMANDED [ UNcoME 52,000) 50 46 1. If your income is $10,000, use the midpoint method to calculate your price elasticity of demand as the price of compact discs increases from $8 to $10. How can you classify the demand for discs when the income is 10,000?(1mark) 2. If your income is $12,000, use the midpoint method to calculate your price elasticity of demand as the price of compact discs increases from $8 to $10 How can you classify the demandfor discs when the income is 12,000?(1 mark) ཚེ ། ། 8 * （ ) :-

Answer 1

Q1
Answer
Elasticity of demand=(change in quantity/average quantity)/(change in price/average price)
Change in quantity=32-40=-8
average quantity=(32+40)/2=36
change in price=10-8=2
average price=(10+8)/2=9
Elasticity of demand=(-8/36)/(2/9)
=-1
=1 (absolute value)
The demand is unit elastic as the elasticity is equal to 1.
--------
Q2
Answer
Elasticity of demand=(change in quantity/average quantity)/(change in price/average price)
Change in quantity=46-50=-4
average quantity=(46+50)/2=48
change in price=10-8=2
average price=(10+8)/2=9
Elasticity of demand=(-4/48)/(2/9)
=-0.375
=0.375 (abolute value)
THe demand is inelastic as the elastcity is below 1.
--------