How is it possible that in some markets the income elasticity of demand for motorhomes is...

How is it possible that in some markets the income elasticity of demand for motorhomes is 3.5 and in other markets it is -1.25?

Expert Solution

Motorhomes are mechanized coaches with living facilities are it is perceived differently in different market. Income elasticity of demand of 3.5 for the motorhomes, means that, with increase in the income, then demand for the motorhomes increase sharply. Since the elasticity is more than 1 then, it is perceived as a luxury good or the good that increases the status of individuals. In these markets, the traditional homes are cheaper and people want to buy motorhomes with the increase in income.
In some markets, the income elasticity of demand is -1.25 and it means that motorhomes are inferior good. In these markets, the traditional homes are expensive and people want to buy a traditional home when the income rises. So, for motorhomes, the income elasticity in negative.
So, it is the type of good perceived, the trends and preferences and the value perceived from the other products that affect the income elasticity of demand in different markets.

Rahul Sunny answered 2 years ago

The income elasticity of demand for haircuts is 1.5, and the income elasticity of demand for...

The income elasticity of demand for haircuts is 1.5, and the income elasticity of demand for food is 0.14. You take a weekend job, and the income you have to spend on food and haircuts doubles. If the prices of food and haircuts remain the same, will you double your expenditure on haircuts and double your expenditure on food? Explain why or why not. (33 points)

Determine the price elasticity of demand, the cross-price elasticity of demand or the income elasticity in...

Determine the price elasticity of demand, the cross-price elasticity of demand or the income elasticity in the following scenarios a. Consider the market for coffee. Suppose the price rises from $4 to $6 and quantity demanded falls from 120 to 80. What is price elasticity of demand? Is coffee elastic or inelastic? b. John’s income rises from $20,000 to $22,000 and the quantity of hamburger he buys each week falls from 2 pounds to 1 pound. What his income elasticity? Is hamburger...

1.) the price elasticity of demand for margarine is -1.3 and the income elasticity of demand...

1.) the price elasticity of demand for margarine is -1.3 and the income elasticity of demand for margarine is -0.2. a. Based on these figures, is the demand for margarine elastic or inelastic? How can you tell? b. If the price of margarine falls by 5%, by what percentage will the quantity of margarine demanded change? Will it rise or fall? c. If the price of margarine falls by 5%, by what percentage will the total revenue from sales of...

Suppose the income elasticity of demand for food is 0.5 and the price elasticity of demand...

Suppose the income elasticity of demand for food is 0.5 and the price elasticity of demand is -1.0. Suppose a hypothetical group of people spend $10,000 a year on food, the price of food is $2, and that their total income is $25,000. a. If a sales tax on food caused the price of food to increase to $2.50, what would happen to their consumption of food? b. Suppose they will get a tax rebate of $2500 to ease the...

Discuss factors affecting the Price Elasticity of Demand, Income Elasticity of Demand, and Cross-price Elasticity of...

Discuss factors affecting the Price Elasticity of Demand, Income Elasticity of Demand, and Cross-price Elasticity of Demand for LUX, a five-star resort in the Maldives. Identify any unique amenities of the resort and forms of transportation to the remote islands. Discuss why forecasting is critical for the success of the one island, one resort concept. Mention the importances of demand (i.e. effective demand, elasticity, inelasticity) and price while tying in with the topic. At least 200 words (important). Thanks in...

Income Elasticity of Demand characterizes how the demand for a good changes when consumer or customer income changes.

Income Elasticity of Demand characterizes how the demand for a good changes when consumer or customer income changes. This responsiveness to income also tells you whether the good in question is considered to be a normal good, or an inferior good.Firstly, define what exactly we mean in economics by a normal good and an inferior good?In two different articles in the 90’s some economists estimated the following income elasticities of demand for three goods. Based on the estimates below, which goods...

Please define and explain “income elasticity of demand” and “price elasticity”:

Suppose Income Elasticity of Demand is -0.7 for french fries and Cross-Price Elasticity of Demand for...

Suppose Income Elasticity of Demand is -0.7 for french fries and Cross-Price Elasticity of Demand for french fries and pizza is 1.8. Then the following happen: Income increase and the price of pizza goes down. Using a Supply and Demand Model, what happens to the equilibrium price and equilibrium quantity of french fries? Victor Laszlo demands two exit visas. He is willing to pay any price to get them. Draw his demand curve.

Explain the concepts of cross-price elasticity of demand and income elasticity of demand. (10 points) What...

Explain the concepts of cross-price elasticity of demand and income elasticity of demand. (10 points) What do positive and negative values indicate for each of these demand elasticities?

Karl’s income elasticity of demand for peanut butter is 0.20 while his price elasticity of demand...

Karl’s income elasticity of demand for peanut butter is 0.20 while his price elasticity of demand for peanut butter is -1.20. Karl’s income is $20,000 per year and the price of peanut butter is currently $4.00. Karl currently spends $2,000 per year on peanut butter Pea butter is taxed which increases its price by 5%. a. Calculate what happens to Karl’s purchases of peanut butter. b. Will Karl end up spending on peanut butter after the price increase? Explain c....

Question