Question

2 a) The Wall Street Journal reported in January 2018 that the makers of many household goods have increased the price of household/personal care products by 2.9% from prices in the previous year. If the elasticity of demand were 0.48, then we can predict that the quantity of household products should have ______ ( increased ;decreased ) by _________. Show calculation/method here:

b). For this question, write the correct elasticity measure below the product you think it matches best then give your reason for one of the matches only Ed = -3.6 -1.4 -0.8 Airline travel; pet food; Delta airlines

(c)Tue or False? The government wants to raise tariffs on foreign cars that are gas guzzlers to discourage people from buying them because they are bad for the environment Then such cars are considered inferior. ______ explain briefly

d) In 2017 price elasticity was estimated for the good below, Do you think the elasticity number today would be higher? lower? The same? Why? Give two reasons Electric car: - 0.61

1. ___________________________________

2. ___________________________________

3. ___________________________________

e). An article in the Journal of New York State Economic Association claims that the income elasticity of demand for public college education in New York is + 2.16 .Who would find this information useful and most importantly WHY? Come up with 3 or more interested parties- keep in mind students are not one of them because they are the ones reacting. You MUST give a brief explanation for each to make connection clear.

a).

b).

c).

Answer 1

2. a) Elasticity = (-) Percentage change in demand / Percentage change in prices

here elasticity= 0.48, percentage change in prices= 2.9

therefore percentage change in demand=(-) 0.48 * 2.9 = (-) 1.392

so, demand for household products decreased by 1.392%

b) Airline travels is will be most elastic among the three as the price of airline increases people travel less by airline. So, the elasticity of demand for airline travels is -3.6. Delta airlines will be less elastic than airline travels but more elastic than pet food so delta airline elasticity of demand is -1.4 which implies as price of delta airlines increases demand for delta airlines decreases. Pet food elasticity of demand is -0.8 as the price of pet food increases it will have less impact on the demand of pet food as it is a necessary good.

c) False, Inferior goods are those goods the demand of goods decreases as the income increases and vice-versa. The government raises the tariff as a result the prices of the foreign car increases and will be purchased only by the customers who have higher incomes.

d) I think the demand for electric car which is 0.67 in 2017 will have higher elasticity today because:

1. If the price of electric cars increases the demand for the electric cars decreases it is a luxury good.

2. The substitutes of electric cars are petrol cars, buses and other transportation so, it is easily available for them to substitute for electric cars. So, electric cars have highly elastic.

e) Income elasticity of demand for public college education in New York is + 2.16 . This information is important for these parties:

1. Policymakers- because they set the education policies such that it benefits the society. Income elasticity helps them to set education policies.

2. Trusties of the college- because they have invested in the college. Income elasticity helps them to decide whether to invest or not.

3. Parents of the student- because they fund the education of the child. Income elasticity impacts their spending on the education.