Question

2). Explain the difference between "change in supply" and "change in quantity supplied" Use graph to support your answer I 3a). Suppose that household income in Charlottetown increases from $44 000 to $45 000 and, assuming no change in price the quantity of Baker Baked Beans rises from 90 to 94cases per week. What is income elasticity of demand for the beans? Is the product a normal or inferior product? 3b). Explain why you would expect the demand for an item to be more elastic in the long run than in the short run. Page 1 of 3

Answer 1

As per policy we have to answer first question, I have answered more than one

1) A change in supply causes a shift in the entire supply curve in response to something besides price such as production costs, taxes, changes in input prices, changes in regulations, and improvement in technology as enclosed in graph-1. A change in quantity supplied causes a movement along the supply curve due to the change in price as enclosed in graph-2

2) Percentage change in Demand = [(Demand End - Demand Start) / Demand Start] = (94 - 90) / 90 = 0.04444

Percentage change in Income = [(Income End - Income Start) / Income Start] = (45,000 - 44,000) / 44,000 = 0.027273

Income Elasticity of Demand = Percentage change in Demand / Percentage change in Income

= 0.04444 / 0.027273 = 1.96

As income elasticity of demand is above 1 thus the good is a normal product and a luxury

GRAPH-1 GRAPH-2 Price S1 SO S2 Price Price So Quantity Quantity