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Refer to the table on the income Elasticity of Demand for Jasmine rice and Bestla Tin fish. Calculate the income elasticity of demand for Bests tin fish and state the type of elasticity.

Economics

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Part a· 4 steps

Calculate the income elasticity of demand for Besta Tinfish.

  1. Identify the initial and new values for income and quantity demanded for Besta Tinfish.

    Initial Income (Y1Y_1) = 100 K
    New Income (Y2Y_2) = 120 K
    Initial Quantity Demanded (Q1Q_1) = 8
    New Quantity Demanded (Q2Q_2) = 12

  2. Calculate the percentage change in quantity demanded using the midpoint formula.

    Percentage Change in Quantity=Q2−Q1(Q1+Q2)/2=12−8(8+12)/2=420/2=410=0.4\text{Percentage Change in Quantity} = \frac{Q_2 - Q_1}{(Q_1 + Q_2)/2} = \frac{12 - 8}{(8 + 12)/2} = \frac{4}{20/2} = \frac{4}{10} = 0.4

  3. Calculate the percentage change in income using the midpoint formula.

    Percentage Change in Income=Y2−Y1(Y1+Y2)/2=120−100(100+120)/2=20220/2=20110=211≈0.1818\text{Percentage Change in Income} = \frac{Y_2 - Y_1}{(Y_1 + Y_2)/2} = \frac{120 - 100}{(100 + 120)/2} = \frac{20}{220/2} = \frac{20}{110} = \frac{2}{11} \approx 0.1818

  4. Calculate the Income Elasticity of Demand (YED) for Besta Tinfish.

    YED=Percentage Change in QuantityPercentage Change in Income=0.42/11=0.4×112=0.2×11=2.2YED = \frac{\text{Percentage Change in Quantity}}{\text{Percentage Change in Income}} = \frac{0.4}{2/11} = 0.4 \times \frac{11}{2} = 0.2 \times 11 = 2.2

    Since the YED is positive and greater than 1 (2.2>12.2 > 1), Besta Tinfish is a luxury good (income elastic).

    Income Elasticity of Demand for Besta Tinfish=2.2\boxed{\text{Income Elasticity of Demand for Besta Tinfish} = \textbf{2.2}} Type of Elasticity: Luxury good (Income elastic)\boxed{\text{Type of Elasticity: \textbf{Luxury good (Income elastic)}}}

Part b· 4 steps

Calculate the income elasticity of demand for Jasmine rice.

  1. Identify the initial and new values for income and quantity demanded for Jasmine rice.

    Initial Income (Y1Y_1) = 100 K
    New Income (Y2Y_2) = 120 K
    Initial Quantity Demanded (Q1Q_1) = 10
    New Quantity Demanded (Q2Q_2) = 11

  2. Calculate the percentage change in quantity demanded using the midpoint formula.

    Percentage Change in Quantity=Q2−Q1(Q1+Q2)/2=11−10(10+11)/2=121/2=110.5≈0.0952\text{Percentage Change in Quantity} = \frac{Q_2 - Q_1}{(Q_1 + Q_2)/2} = \frac{11 - 10}{(10 + 11)/2} = \frac{1}{21/2} = \frac{1}{10.5} \approx 0.0952

  3. Calculate the percentage change in income using the midpoint formula.

    Percentage Change in Income=Y2−Y1(Y1+Y2)/2=120−100(100+120)/2=20220/2=20110=211≈0.1818\text{Percentage Change in Income} = \frac{Y_2 - Y_1}{(Y_1 + Y_2)/2} = \frac{120 - 100}{(100 + 120)/2} = \frac{20}{220/2} = \frac{20}{110} = \frac{2}{11} \approx 0.1818

  4. Calculate the Income Elasticity of Demand (YED) for Jasmine rice.

    YED=Percentage Change in QuantityPercentage Change in Income=1/10.52/11=110.5×112=1121≈0.52YED = \frac{\text{Percentage Change in Quantity}}{\text{Percentage Change in Income}} = \frac{1/10.5}{2/11} = \frac{1}{10.5} \times \frac{11}{2} = \frac{11}{21} \approx 0.52

    Since the YED is positive and between 0 and 1 (0<0.52<10 < 0.52 < 1), Jasmine rice is a necessity good (income inelastic).

    Income Elasticity of Demand for Jasmine rice≈0.52\boxed{\text{Income Elasticity of Demand for Jasmine rice} \approx \textbf{0.52}} Type of Elasticity: Necessity good (Income inelastic)\boxed{\text{Type of Elasticity: \textbf{Necessity good (Income inelastic)}}}
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