The monthly salary of a policeman is 25 ♌ as time goes price increase to $35 so he could now able to afford 40 loaves of bread instead of 20 . Find you the value of elasticity demand
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3 stepsThis question involves calculating the elasticity of demand based on changes in income and quantity. We will assume that "price increase to 35" refers to the policeman's salary (income) increasing from 25 ♌ to 35 ♌, as the initial 25 ♌ is stated as "monthly salary". Therefore, we are calculating the income elasticity of demand.
The formula for income elasticity of demand (YED) using the midpoint method is:
Where:
= Initial Income = 25 ♌
= New Income = 35 ♌
= Initial Quantity = 20 loaves
= New Quantity = 40 loaves
Calculate the percentage change in quantity demanded.
Change in quantity () = loaves
Average quantity () = loaves
Percentage change in quantity =Calculate the percentage change in income.
Change in income () = ♌
Average income () = ♌
Percentage change in income =Calculate the Income Elasticity of Demand.
The value of the income elasticity of demand is 2.
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