Question

Suppose that your demand schedule for pizza is as follows:

Price Quantity of Pizzas Demanded Quantity of Pizzas Demanded
(Dollars) (Income = $20,000) (Income = $24,000)
8 40 50
10 32 45
12 24 30
14 16 20
16 8 12
Using the midpoint method, your price elasticity of demand as the price of pizzas increases from $14 to $16 is 0.27/0.20/5.00/3.75 if your income is $20,000 and 5.00/0.27/0.20/3.75 if your income is $24,000.

If the price of a pizza is $10, your income elasticity of demand is 1.22/0.07/0.10/1.86 as your income increases from $20,000 to $24,000. However, if the price of a pizza is $14, your income elasticity is 1.86/0.07/0.10/1.22.

Answer 1

Answer:

1. 5.00

2. 3.75

3. 1.86

4. 1.22

Explanation:

The calculations are all in the attachment.

1. As the price elasticity goes from $14 to $16, the price of pizza becomes $5 at an income of $20,000

2. With income = $24000, if the price should move from $14 to $16, the price elasticity of demand is 3.75

3. With the price of pizza at $10, the income elasticity of demand as income rises from 20000 to 24000 = 1.86

4. If we have price if pizza as 24 dollars, with income rising from $20000 to $24000, then the income elasticity of demand = 1.22

Please check the attachment for the calculations