Answer:
Price elasticity at income $20000 = 1.580
Price elasticity at income $24000 = 2.209
Income elasticity at price $12 = 1.25
Explanation:
First, let's add the missing piece of information for clarity
Price Quantity of Quantity of (Dollars) Pizzas Pizzas
Demanded Demanded
(Income (Income
= $20,000) = $24,000)
8 40 50
10 32 45
12 24 30
14 16 20
16 8 12
Step 1
Given,
Income = $20,000,
The quantity demand for good reduced from 32 to 24 when the price is raised from $10 to $12.
Take,
Q1 = 32; Q2 = 24; P1 = 10; P2 = 12
The midpoint formula to estimate the price elasticity of demand-
(Q2 - Q1)/[(Q1 + Q2)/2]
e = - ----------------------------------
(P2-P1)/[(P1 + P2)/2]
Lets input the values
(24 - 32)/[(24 + 32)/2]
e = - --------------------------------
(12 - 10)/[(10 + 12)/2]
e = - (-8)/[56/2]
------------
(2)/[22/2]
e = 0.286/0.181
e = 1.580
The price elasticity of demand as the price of pizzas raises from $10 to $12 is 1.580 if the income is $20,000.
Step 2
Given,
Income = $24,000,
The quantity demand for good reduced from 45 to 30 when the price is raised from $10 to $12.
Take,
Q1 = 45; Q2 = 30; P1 = 10; P2 = 12
The midpoint formula to estimate the price elasticity of demand-
(Q2 - Q1)/[(Q1 + Q2)/2]
e = - -------------------------------
(P2-P1)/[(P1 + P2)/2]
Lets input the values
(30 - 45)/[(45 + 30)/2]
e = - -------------------------------
(12 - 10)/[(10 + 12)/2]
e = - (-15)/[75/2]
--------------
(2)/[22/2]
e = 0.400/0.181
e = 2.209
The price elasticity of demand as the price of pizzas raises from $10 to $12 is 2.209 if the income is $24,000.
Step 3
At a $12 price, we have the demand for good raising from 24 to 30 when the income raised from $20,000 to $24,000.
Take,
Q1 = 24; Q2 = 30; I1 = $20,000; I2 = $24,000
Income elasticity of demand (ei):
Is % change in demand of a good as a result of the % change in the income of a consumer. There is a ppsitive relation between the income of a consumer and the quantity demanded.
Formula for income elasticity is:
ei = %change in demand
------------------------------
%change in income
ei = [(Q2-Q1/Q1) × 100]
--------------------------
[(I2 - I1/I1) × 100]
ei = [(30-24)/24 × 100]
---------------------------------------------
[(24,000 - 20,000)/20,000 × 100]
ei = 25/20
ei = 1.25
