Asked by Zuleika Torres on Jul 16, 2024
Verified
The demand for voice mail is Q 1,000 150P 20I.Assume that per capita disposable income I is $900.At a price P of $40, the income elasticity of demand is
A) 2.
B) 4.
C) 1.0.
D) 20.
E) 1.38.
Income Elasticity
A measure of how the quantity demanded of a good responds to a change in consumers' income.
Voice Mail
An electronic communication system that allows users to leave voice messages for others to retrieve later.
Disposable Income
The amount of money that households have available for spending and saving after income taxes have been accounted for.
- Compute the price elasticity of demand for different products.
- Analyze how changes in income influence the demand for goods.
Verified Answer
BM
Brittany MacKeiganJul 21, 2024
Final Answer :
E
Explanation :
First, we can calculate the quantity demanded at the given price and income level:
Q = 1,000 - 150P + 20I
Q = 1,000 - 150(40) + 20(900)
Q = 7,000
Next, we can calculate the income elasticity of demand at this point:
E(subscript)I(subscript) = (% change in quantity demanded) / (% change in income) * (income / quantity)
E(subscript)I(subscript) = [(20 / 900) / (7,000 / 40)]
E(subscript)I(subscript) = 1.38
Therefore, the income elasticity of demand at a price of $40 and per capita disposable income of $900 is 1.38, which is closest to choice (E).
Q = 1,000 - 150P + 20I
Q = 1,000 - 150(40) + 20(900)
Q = 7,000
Next, we can calculate the income elasticity of demand at this point:
E(subscript)I(subscript) = (% change in quantity demanded) / (% change in income) * (income / quantity)
E(subscript)I(subscript) = [(20 / 900) / (7,000 / 40)]
E(subscript)I(subscript) = 1.38
Therefore, the income elasticity of demand at a price of $40 and per capita disposable income of $900 is 1.38, which is closest to choice (E).
Learning Objectives
- Compute the price elasticity of demand for different products.
- Analyze how changes in income influence the demand for goods.