Question

From the graph given,

a) locate two points on an individual demand curve that you sketch directly below the graph presented.

b) what is the point price elasticity of demand at price 3?
c) Is this commodity a normal good, inferior, or Giffin good by all? Show how you know by additional sketching on the graph (Hint: by finding substitution effect and income effect you shift the budget constrain parallel to the right until it attaches to the higher indifference curve, and you find ICC curve).

23,46,50,100

Good Y 100 23 16 50 100 Good X

Answer 1

Two points pha A & B respectiully on individual demand cures $& Pi are given hopes alone which are sketches on X anis at. writs corresponding to respect

Qol Крод A Date
two points A and B are sketched to 46 and 50 units respectively on X axis from individual demand curve D1 in image above.

2)Point price elasticity for price equals 3 will be very very less and almost negligible tending to zero. Because if say price=3 corresponds to point p on demand curve D then, point price elasticity at point p will be PB"/AP where PB" = 5/ AP>>>>5. PB "=5 because A"B"=4 units respectively. hence PB"= 5 by PYTHagorean triplet. Now APis >>>>PB" hence their ratio will be very very small tending to zero.

3)Now if we consider income effect ,Proportionate change in quantity demanded / proportionate change in income then this will be greater  than zero...As income increases the chnage in quantity demanded will be slightly increasing as ICC shifts towards right..Thus these are normal goods.