If Linda's income decreases by 15% and her expenditure on DVDs increases by 10%, Linda's price...

If Linda's income decreases by 15% and her expenditure on DVDs increases by 10%, Linda's price elasticity of demand for DVDs is:
A. inelastic
B. positive
C. cannot be determined from the information given
D. unit elastic
E. highly responsive

Pl explain why the selected answer is correct and also explain in one-two line why other answers are incorrect.

Solutions

Expert Solution

Since income elasticity measures the effect of change in the income of the consumers on the demand for the goods.

Income elasticity of demand of X = % change in the quantity demand of good X/ % change in the Income.

Hence it means that income elasticity refers to percentage change in quantity demanded divided by the percentage change in the income.

Since the elasticity of demand can be defined as the measurement of the degree of the responsiveness of the quantity demand due to the change in the price level.

Price elasticity of demand= % change in the quantity demand/ % change in the price

If Ed is greater than 1, then the demand is elastic.

If Ed is less than 1, then the demand is elastic.

If Ed is equal to 1, then the demand is unit elastic.

If Ed is equal to 0, then the demand is perfectly inelastic.

If Ed is infinity, then the demand is perfectly elastic.

Hence when Linda's income decreases by 15% and her expenditure on DVDs increases by 10%,

Linda's price elasticity of demand for DVDs is=% change in the quantity demand/ % change in the price

For calculating price elasticity of demand % change in the quantity demand and % change in the price are required but only % change in the quantity demand given and % change in the price is not given.

Hence with the given information it cannot be determined the price elasticity of demand.

When price elasticity of demand cannot be determined, then it is not possible to tell about the nature of elasticity and degree of elasticity.

Hence it cannot be determined demand is inelastic, unit elastic and highly responsive.

Since demand shows inverse relation, so elasticity of demand cannot be positive.

Hence only option C is the correct answer.

Rahul Sunny answered 1 year ago

Next > < Previous

Related Solutions

Complete the following sentence. If, as Paula's income increases, her demand for hot dogs decreases, then...

Complete the following sentence. If, as Paula's income increases, her demand for hot dogs decreases, then for Paula, hot dogs are _______. A. a substitute B. a complement C. an inferior good D. a normal good

"When the price level increases, aggregate planned expenditure increases and equilibrium expenditure increases." Is this statement...

"When the price level increases, aggregate planned expenditure increases and equilibrium expenditure increases." Is this statement correct? Discuss by giving appropriate examples of scenario, data and/or diagrams to justify your answer.

If the price elasticity of demand for cigarettes is –0.50 and the price of cigarettes increases 10%, the quantity demanded of cigarettes decreases by 50%.

True or False?If the price elasticity of demand for cigarettes is –0.50 and the price of cigarettes increases 10%, the quantity demanded of cigarettes decreases by 50%.

If income increases by 12 percent and the quantity demanded of a good then decreases by...

If income increases by 12 percent and the quantity demanded of a good then decreases by 6 percent, the good is: A) inferior and income-inelastic. B) inferior and income-elastic. C) normal and income-inelastic. D) normal and income-elastic.

The price of DVDs (D) is $20 and the Price of CDs (C) is $10. Phillip...

The price of DVDs (D) is $20 and the Price of CDs (C) is $10. Phillip has a budget of $100 to spend on goods. A). Given the above prices and income, Write and equation for Philips budget line and draw his budget line on a graph with CDs on the horizontal axis. Also calculate the slope of his budget line. B). List all the market bundles(baskets) of DVDs and CDs that he could choose. For this part of the...

Does Engel's law (as income increases, the % of income spent on food decreases) hold true...

Does Engel's law (as income increases, the % of income spent on food decreases) hold true for the poor? Why or why not?

1. The quantity demanded of a product generally __________(increases/decreases) as the price of the product...

1. The quantity demanded of a product generally __________ (increases/decreases) as the price of the product falls, ceteris paribus.2. The supply curve depicts the relationship between the __________ and the __________.3. From the following list, choose the variables that are held fixed when drawing a market supply curve:•The price of the product •Wages paid to workers •The price of materials used in production •Taxes paid by producers •the quantity of the product purchased

Vanessa is an oligopolist who believes that if she decreases her price, her competitors will not...

Vanessa is an oligopolist who believes that if she decreases her price, her competitors will not follow and decrease their prices. Draw a graph showing Vanessa's firm in short-run equilibrium, using demand, marginal cost, marginal revenue, and average-total-cost curves. Indicate the price and quantity Vanessa will produce in short-run equilibrium, and show a price decrease that results in Vanessa's firm still earning positive economic profits

The consumer's original monthly income is $4,000. Her income increases by 25%, and, a result, her...

The consumer's original monthly income is $4,000. Her income increases by 25%, and, a result, her demand for Good X changes from 300 to 350 units per month. Based on this information, a. Good X is price inelastic, and is a complement in consumption. b. Good X is a normal good c. Good X is price elastic, but income inelastic. d. Good X is an inferior good. If the value of the own-price elasticity of demand is infinite (in absolute...

Assume the price of X increases/decreases. Graph the outcomes in the following cases: A. X and...

Assume the price of X increases/decreases. Graph the outcomes in the following cases: A. X and Y are substitutes. B. X and Y are complements. C. X and Y are neither substitutes nor complements.

Subjects