Question

3. Refer to the accompanying graph.

Price	Quantity of I-phones (Income = 20,000)	Quantity of I-phones (Income = 30,000)
$350	250	375
$450	200	325
$550	150	275
$650	100	225
$750	50	175

1. Suppose the price of an I-phone is $650, calculate the income elasticity of demand for I-phone?

2. Is I-phone a normal good? Explain.

3. Do you expect the cross-price elasticity between I-phones and android phones positive or negative? Explain.

Answer 1

3.

Crossprice elasticity of demand tells the relationship between two type of goods whether the two goods are substitutes and complements to each other

Substitutes are those goodswhich can replace each other

For example tea and coffee

Complements of those good with complete each other for example pen and paper

If the value of cross price elasticity of demand between the two goods is positive then the goods are substitute to each other and vice versa

So The cross price elasticity of demand Android phones and iPhone will be positive because they are substitute to each other