The demand curve for the new computer game, Rock and Roll Trivia, is given as follows: Q = 200 - 5P -.1Pc -.5Pd +.2A - I Where P is the price of the game, Pc is the price of a computer, Pd is the price of a diskette, A is the level of advertising, and Q is the level of income. Suppose P = 10, Pc = 100, Pd = 2, A = 5, and I = 50. What is the price elasticity of demand?

Question

Leroy Arroyo

Business

21 November, 14:13

The demand curve for the new computer game, Rock and Roll Trivia, is given as follows: Q = 200 - 5P -.1Pc -.5Pd +.2A - I Where P is the price of the game, Pc is the price of a computer, Pd is the price of a diskette, A is the level of advertising, and Q is the level of income. Suppose P = 10, Pc = 100, Pd = 2, A = 5, and I = 50. What is the price elasticity of demand?

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Answers (1)

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Tristian Mueller · Answer 1

Income elasticity of demand = - 0.56

Explanation:

Given,

P=10, Pc=100, Pd=2, A=5, and I=50.

So,

Q=200-5 (10) -.1 (100) -.5 (2) +.2 (5) - (50).

Q=90 (level of income)

Computation:

Given, I = 50, Q = 90.

ΔQ / ΔI = - 1

Income elasticity of demand = (ΔQ / ΔI) x (I / Q)

Income elasticity of demand = - 1 x (50 / 90)

Income elasticity of demand = - 0.56