Question

Own​ price, Px​ = ​$30 Price of a related​ good, Py​ = ​$4 Quantity demanded​ = 24.75 Price of a related​ good, Pz​ = ​$275 Consumer​ income, Y​ = ​$20 comma 000 The income elasticity of demand ​'xi​', when equilibrium quantity is 24.75 units and income is ​$20 comma 000​, is equal to . 808 ​(enter your response rounded to three decimal places​). In this case the good​ is:

Answer 1

Answer:

Explanation:

Given the following ;

• Px​ = ​$30, Py​ = ​$4, Quantity demanded​ = 24.75 , Pz​ = ​$275 , Y​ = ​$20

• I = $20,000, Q = 24.75 units

• From the equation ; Q=9-0.1Px-Py+0.01Pz+0.001Y

• differentiate Q wrt Y; dQ/dY = 0.001

• And from Income elasticity of demand = (dQ/dY) x (I/Q)

• = 0.001 x 20,000/24.75

• = 0.80

from the calculation of the income elasticity of demand which is less than 1, hence the good is a NECESSITY and not a Luxury.

If IED > 1 ; Goods is Luxury

if IED < 1 ; Goods is necessity