An individual's income rises from $88 comma 000
per year to $92 comma 000
per year, and as a consequence the person's purchases of movie downloads rise from 2
per month to 4
per month.
This individual's income elasticity of demand is---.
The income elasticity of demand can be calculated using the formula:
Income elasticity of demand = (% change in quantity demanded) / (% change in income)
To calculate the % change in quantity demanded:
Change in quantity demanded = New quantity demanded - Initial quantity demanded
% change in quantity demanded = (Change in quantity demanded / Initial quantity demanded) × 100%
Change in quantity demanded = 4 - 2 = 2
Initial quantity demanded = 2
% change in quantity demanded = (2 / 2) × 100% = 100%
To calculate the % change in income:
Change in income = New income - Initial income
% change in income = (Change in income / Initial income) × 100%
Change in income = $92,000 - $88,000 = $4,000
Initial income = $88,000
% change in income = ($4,000 / $88,000) × 100% ≈ 4.55%
Now, we can substitute these values into the income elasticity of demand formula:
Income elasticity of demand = (100% / 4.55%) ≈ 21.98
Therefore, this individual's income elasticity of demand is approximately 21.98.
This individual's income elasticity of demand is 15
. Therefore, movie downloads are---normal, inferior, substitute---.
If the income elasticity of demand for movie downloads is 15, it indicates a high positive value. This means that movie downloads are considered a normal good.
Normal goods are products or services for which demand increases as income rises. In this case, as the individual's income increased, their purchases of movie downloads also increased. Therefore, movie downloads are considered a normal good for this individual.
To calculate the income elasticity of demand, we need to use the following formula:
Income Elasticity of Demand = Percentage Change in Quantity Demanded / Percentage Change in Income
1. Calculate the percentage change in income:
Percentage Change in Income = (New Income - Old Income) / Old Income * 100
Percentage Change in Income = ($92,000 - $88,000) / $88,000 * 100
2. Calculate the percentage change in quantity demanded:
Percentage Change in Quantity Demanded = (New Quantity Demanded - Old Quantity Demanded) / Old Quantity Demanded * 100
Percentage Change in Quantity Demanded = (4 - 2) / 2 * 100
3. Plug in the values into the formula:
Income Elasticity of Demand = Percentage Change in Quantity Demanded / Percentage Change in Income
Income Elasticity of Demand = ((4 - 2) / 2 * 100) / ((92,000 - 88,000) / 88,000 * 100)
Simplifying the equation:
Income Elasticity of Demand = (2 / 2 * 100) / (4,000 / 88,000 * 100)
Income Elasticity of Demand = 1 / (4,000 / 88,000)
Income Elasticity of Demand = 1 / 0.04545
Therefore, the individual's income elasticity of demand is approximately 22.05.
To find the income elasticity of demand, we need to use the following formula:
Income Elasticity of Demand = (Percentage change in quantity demanded) / (Percentage change in income)
First, let's find the percentage change in quantity demanded:
Percentage change in quantity demanded = ((New Quantity Demanded - Old Quantity Demanded) / Old Quantity Demanded) * 100
Let's substitute the given values into the formula:
Old Quantity Demanded = 2 per month
New Quantity Demanded = 4 per month
Percentage change in quantity demanded = ((4 - 2) / 2) * 100 = (2 / 2) * 100 = 1 * 100 = 100%
Next, let's find the percentage change in income:
Percentage change in income = ((New Income - Old Income) / Old Income) * 100
Given:
Old Income = $88,000 per year
New Income = $92,000 per year
Percentage change in income = (($92,000 - $88,000) / $88,000) * 100 = ($4,000 / $88,000) * 100 = 0.045 * 100 = 4.55%
Now, we can calculate the income elasticity of demand using the formula:
Income Elasticity of Demand = (Percentage change in quantity demanded) / (Percentage change in income)
Income Elasticity of Demand = 100% / 4.55% ≈ 21.98
Therefore, the income elasticity of demand is approximately 21.98.