Determine the Income elasticity for a movement from A to B and from B to C.

Question

ScanSolve AI Tutor · Accepted Answer

The image shows calculations for income elasticity. Let's verify them.

The formula for Income Elasticity is given as:

\epsilon_Y = \frac{\Delta Q}{\Delta Y} \times \frac{Y}{Q}

Where $\Delta Q$ is the change in quantity demanded, $\Delta Y$ is the change in income, $Y$ is the initial income, and $Q$ is the initial quantity demanded.

1. Movement from Point A to Point B:

Point A: $Y_1 = 100$ , $Q_1 = 200$
Point B: $Y_2 = 200$ , $Q_2 = 400$

Calculate the changes in income and quantity.
$\Delta Y = Y_2 - Y_1 = 200 - 100 = 100$ $\Delta Q = Q_2 - Q_1 = 400 - 200 = 200$
Apply the income elasticity formula using initial values $Y=100$ and $Q=200$ .
$\epsilon_Y = \frac{\Delta Q}{\Delta Y} \times \frac{Y}{Q} = \frac{200}{100} \times \frac{100}{200}$ $\epsilon_Y = 2 \times 0.5$ $\epsilon_Y = 1$
Interpret the result.
Since $\epsilon_Y = 1$ (which is positive), the good is a normal good.
The calculation shown in the image for A to B is correct.

2. Movement from Point B to Point C:
- Point B: $Y_1 = 200$ , $Q_1 = 400$
- Point C: $Y_2 = 300$ , $Q_2 = 150$
Calculate the changes in income and quantity.
$\Delta Y = Y_2 - Y_1 = 300 - 200 = 100$ $\Delta Q = Q_2 - Q_1 = 150 - 400 = -250$
Apply the income elasticity formula using initial values $Y=200$ and $Q=400$ .
$\epsilon_Y = \frac{\Delta Q}{\Delta Y} \times \frac{Y}{Q} = \frac{-250}{100} \times \frac{200}{400}$ $\epsilon_Y = -2.5 \times 0.5$ $\epsilon_Y = -1.25$
Interpret the result.
Since $\epsilon_Y = -1.25$ (which is negative), the good is an inferior good.
The calculation shown in the image for B to C is correct.

The calculations provided in the image are accurate.

Determine the Income elasticity for a movement from A to B and from B to C.

Step-by-step solution

Calculate the changes in income and quantity.

Apply the income elasticity formula using initial values $Y=100$ and $Q=200$ .

Interpret the result.

Calculate the changes in income and quantity.

Apply the income elasticity formula using initial values $Y=200$ and $Q=400$ .

Interpret the result.

Still stuck on this one?

More Economics Questions

Determine the Income elasticity for a movement from A to B and from B to C.

Step-by-step solution

Calculate the changes in income and quantity.

Apply the income elasticity formula using initial values Y=100Y=100Y=100 and Q=200Q=200Q=200.

Interpret the result.

Calculate the changes in income and quantity.

Apply the income elasticity formula using initial values Y=200Y=200Y=200 and Q=400Q=400Q=400.

Interpret the result.

Still stuck on this one?

More Economics Questions

Apply the income elasticity formula using initial values $Y=100$ and $Q=200$ .

Apply the income elasticity formula using initial values $Y=200$ and $Q=400$ .