3. Based on the following table which indicates expenditure of the household on a commodity, answer the questions that follow (The price of the good is Br.10)
Income Quantity Demanded
( Br. / month) ( units / month )
10,000 50
20,000 60
30,000 70
40,000 80
50,000 90
A) Calculate income elasticity of demand, if income increases from Br.10, 000 to Br.
20,000 and if income increases from Br.40, 000 to Br. 50,000.
B) Is this a normal or an inferior or a luxury good? Justify.
C) Does the proportion of household income spent on this good increase or decrease as income increases? .Why?
Answers
Answer:
Based on the following table which indicates expenditure of the household on a commodity, answer the questions that follow ( The price of the good is Br.10 ) Income ( Br. / month) Quantity Demanded ( units / month ) 10,000 50 20,000 60 30,000 70 40,000 80 50,000 90 A)Calculate income elasticity of demand, if income increases from Br.10, 000 to Br. 20,000 and if income increases from Br.40, 000 to Br. 50,000. B)Is this a normal or an inferior or a luxury good? Justify. C)Does the proportion of household income spent on this good increase or decrease as income increases? .Why? 8.When price of tea in local café rises from Br. 10 to 15 per cup, demand for coffee rises from 3000 cups to 5000 cups a day despite no change in coffee prices. A)Determine cross price elasticity. B)Based on the result, what kind of relation exists between the two goods? Suggested reading materials A. Koutsoyiannis, Modern Microeconomics, 2nd edition, 1979 D.N.Dwivedi, 1997, Micro Economic Theory, 3rd edition., Vikas Publishing R. S. Pindyck and D. L. Rubinfeld, Microeconomics, 2nd edition,1992 Varian, 2010, Intermediate Microeconomics: A Modern Approach, 8thedition C.L.Cole, Micro Economics: A Contemporary Approach.Ferguson & Gould‘s, 1989, Microeconomic Theory, 6th edition.E. Mansfield, 1988, Microeconomics:Theory and Applications Arnold, 2008, Microeconomics, 8thedition, International student edition
Explanation:
give answer
wreuejfkckndzrgavga