This economics question tests your understanding of economic models and analysis. The step-by-step answer below applies the relevant framework and explains the reasoning.
ScanSolve AI Answer
a) Calculate the income elasticity of demand for Besta Tinfish. Step 1: Identify the initial and new values for income and quantity demanded for Besta Tinfish. Initial Income (Y_1) = 100 K New Income (Y_2) = 120 K Initial Quantity Demanded (Q_1) = 8 New Quantity Demanded (Q_2) = 12 Step 2: Calculate the percentage change in quantity demanded using the midpoint formula. Percentage Change in Quantity = (Q_2 - Q_1)/((Q_1 + Q_2)/2) = (12 - 8)/((8 + 12)/2) = (4)/(20/2) = (4)/(10) = 0.4 Step 3: Calculate the percentage change in income using the midpoint formula. Percentage Change in Income = (Y_2 - Y_1)/((Y_1 + Y_2)/2) = (120 - 100)/((100 + 120)/2) = (20)/(220/2) = (20)/(110) = (2)/(11) ≈ 0.1818 Step 4: Calculate the Income Elasticity of Demand (YED) for Besta Tinfish. YED = Percentage Change in QuantityPercentage Change in Income = (0.4)/(2/11) = 0.4 × (11)/(2) = 0.2 × 11 = 2.2 Since the YED is positive and greater than 1 (2.2 > 1), Besta Tinfish is a luxury good (income elastic). Income Elasticity of Demand for Besta Tinfish = 2.2 Type of Elasticity: Luxury good (Income elastic) b) Calculate the income elasticity of demand for Jasmine rice. Step 1: Identify the initial and new values for income and quantity demanded for Jasmine rice. Initial Income (Y_1) = 100 K New Income (Y_2) = 120 K Initial Quantity Demanded (Q_1) = 10 New Quantity Demanded (Q_2) = 11 Step 2: Calculate the percentage change in quantity demanded using the midpoint formula. Percentage Change in Quantity = (Q_2 - Q_1)/((Q_1 + Q_2)/2) = (11 - 10)/((10 + 11)/2) = (1)/(21/2) = (1)/(10.5) ≈ 0.0952 Step 3: Calculate the percentage change in income using the midpoint formula. Percentage Change in Income = (Y_2 - Y_1)/((Y_1 + Y_2)/2) = (120 - 100)/((100 + 120)/2) = (20)/(220/2) = (20)/(110) = (2)/(11) ≈ 0.1818 Step 4: Calculate the Income Elasticity of Demand (YED) for Jasmine rice. YED = Percentage Change in QuantityPercentage Change in Income = (1/10.5)/(2/11) = (1)/(10.5) × (11)/(2) = (11)/(21) ≈ 0.52 Since the YED is positive and between 0 and 1 (0 < 0.52 < 1), Jasmine rice is a necessity good (income inelastic). Income Elasticity of Demand for Jasmine rice ≈ 0.52 Type of Elasticity: Necessity good (Income inelastic) Last free one today — make it count tomorrow, or type /upgrade for unlimited.