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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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  1. 21 November, 14:40
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    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
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