Question

Find below the data for price elasticity and income elasticity of demand for 5 different commodities. Interpret the values in the table in the light of • Whether the demand is elastic or inelastic for each of the commodities and why • What do you mean by negative income elastic demand in case of commodity Give example for each type of commodity. Commodity Price Elasticity of demand Income elasticity of demand 1 -0.3 +0.6 2 -1.45 +5.60 3 -5.09 -1.67 4 -0.7 +0.8 5 1.0 +1.0 3 a) "Different prices can be charged by the producer in the different market segments to maximize revenue." Explain the statement by taking a case of aviation industry. 3 b) What do you mean by price rigidity? Which type of market structure is characterized by the price rigidity? Explain your views taking an example of industry facing the problem of price rigidity.

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Answer 1

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Answer 2

Answer:

The measure of responsiveness to changes in income is called as income elasticity of demand.

The Income elasticity of demand measure degree of responsiveness of quantity of a commodity demanded to a certain aspects.

Income elasticity of demand is degree of responsiveness along with the quantity demanded for commodity due to changes in the consumer’s income to the high excellence.