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

Economics

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This 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:

YED=Q2−Q1(Q2+Q1)/2I2−I1(I2+I1)/2YED = \frac{\frac{Q_2 - Q_1}{(Q_2 + Q_1)/2}}{\frac{I_2 - I_1}{(I_2 + I_1)/2}}

Where:
I1I_1 = Initial Income = 25 ♌
I2I_2 = New Income = 35 ♌
Q1Q_1 = Initial Quantity = 20 loaves
Q2Q_2 = New Quantity = 40 loaves

  1. Calculate the percentage change in quantity demanded.

    Change in quantity (ΔQ\Delta Q) = Q2−Q1=40−20=20Q_2 - Q_1 = 40 - 20 = 20 loaves
    Average quantity (QavgQ_{avg}) = Q1+Q22=20+402=602=30\frac{Q_1 + Q_2}{2} = \frac{20 + 40}{2} = \frac{60}{2} = 30 loaves
    Percentage change in quantity = ΔQQavg=2030=23\frac{\Delta Q}{Q_{avg}} = \frac{20}{30} = \frac{2}{3}

  2. Calculate the percentage change in income.

    Change in income (ΔI\Delta I) = I2−I1=35−25=10I_2 - I_1 = 35 - 25 = 10 ♌
    Average income (IavgI_{avg}) = I1+I22=25+352=602=30\frac{I_1 + I_2}{2} = \frac{25 + 35}{2} = \frac{60}{2} = 30 ♌
    Percentage change in income = ΔIIavg=1030=13\frac{\Delta I}{I_{avg}} = \frac{10}{30} = \frac{1}{3}

  3. Calculate the Income Elasticity of Demand.

    YED=Percentage change in quantityPercentage change in incomeYED = \frac{\text{Percentage change in quantity}}{\text{Percentage change in income}} YED=2313YED = \frac{\frac{2}{3}}{\frac{1}{3}} YED=23×31YED = \frac{2}{3} \times \frac{3}{1} YED=2YED = 2

    The value of the income elasticity of demand is 2.

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