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Consumer elasticity Solve and evaluate the type of consumer elasticity. Please include computations. 1. Solve and identify (i
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Answer #1

Answer to the last question is done after skipping a step of calculation due to lack of time. sorry for the inconvenience.

ANSWERS:

Question No. 1

1.1 Ed = (Q1-Q2)/(Q1+Q2)    = (5 -12)/ (5+12)   =      - 7/17    =    -0.41176 = -0.823

         (P1-P2)/(P1+P2)           (6-2) /(6+2)              4/8            0.5

Therefore, the demand is inelastic.

1.2 Ed = (Q1-Q2)/(Q1+Q2) = (10-3)/ (10+3) =    7/13     =         0.5384 = -1.076

     (P1-P2)/(P1+P2)         (6-18) /(6+18)      -12/24                   -0.5

Therefore, the demand is elastic.

1.3 Ed = (Q1-Q2)/(Q1+Q2)   = (40-60)/ (40+60) =    -20/100     =            0.2 = 1

     (P1-P2)/(P1+P2)         (8-12) /(8+12)              -4/20                     -0.2

Therefore, the demand is unitary elastic.

Question No.2

2.1 Ey     =       (Q2-Q1)/Q1 =            (11-5)/5   =      6/5   =             1.2     =            2.4

            (Y2-Y1)/Y1                (8-4)/4             2/4                   0.5

Therefore, the good is a luxury good.

2.2 Ey     =       (Q2-Q1)/Q1 =            (15-2)/2 =          13/2   =        6.5     =            -13

            (Y2-Y1)/Y1                (5-10)/10            -5/10             -0.5

Therefore, the good is a inferior good.

Ey     =             (Q2-Q1)/Q1 =            (14-4)/4 =          10/4   =        2.5     =            0.536

            (Y2-Y1)/Y1                (17-3)/3              14/3              4.66

Therefore, the good is a necessary good.

Question No. 3

3.1 Cross Elasticity of Demand = (priceA + priceA) / (quantityB + quantityB) * ΔquantityB / ΔpriceA

                                                = 6

Therefore, the goods are substitute goods.

3.2 Cross Elasticity of Demand = (priceA + priceA) / (quantityB + quantityB) * ΔquantityB / ΔpriceA

                                                = -.0006

Therefore, the goods are complementary goods.

3.3 Cross Elasticity of Demand = (priceA + priceA) / (quantityB + quantityB) * ΔquantityB / ΔpriceA

                                                = -1.07

Therefore, the goods are complementary goods.

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