Question

The demand curve for the new computer game, Rock and Roll Trivia, is given as follows: Q = 200 - 5P - .1Pc - .5Pd + .2A - I Where P is the price of the game, Pc is the price of a computer, Pd is the price of a diskette, A is the level of advertising, and Q is the level of income. Suppose P = 10, Pc = 100, Pd = 2, A = 5, and I = 50. What is the price elasticity of demand?

Answer 1

Answer:

Income elasticity of demand = - 0.56

Explanation:

Given,

P=10, Pc=100, Pd=2, A=5, and I=50.

So,

Q=200-5(10)-.1(100)-.5(2)+.2(5)-(50).

Q=90 (level of income)

Computation:

Given , I = 50, Q = 90.

ΔQ / ΔI = -1

Income elasticity of demand = (ΔQ / ΔI) x (I / Q)

Income elasticity of demand = - 1 x (50 / 90)

Income elasticity of demand = - 0.56