Suppose that your demand schedule for pizza is as follows: price quantity of pizzas demanded quantity of pizzas demanded (dollars) (income = $20,000) (income = $24,000) 8 40 50 10 32 45 12 24 30 14 16 20 16 8 12 using the midpoint method, your price elasticity of demand as the price of pizzas increases from $14 to $16 is if your income is $20,000 and if your income is $24,000. if the price of a pizza is $12, your income elasticity of demand is as your income increases from $20,000 to $24,000. however, if the price of a pizza is $16, your income elasticity is .

1. a) Price elasticity at income $20000 = -1

   b) Price elasticity at income $24000 =  -0.47

2. a) Income elasticity at price $12 = 1.25

 b) income elasticity at price $16 = 2.5

Explanation:

Price Elasticity of demand = change is quantity / change in price

Where

Change in quantity = (quantity current – quantity previous)/ ((quantity current+ quantity previous)/2)

Change in Price = (Price current – Price previous)/ (Price current+ Price previous)/2)

Putting in values for income $20,000

Price elasticity income $20000  = {(32-40)/((32+40)/2)} / {(10-8)/((10+8)/2)}

   = -1

Similary

Price elasticity income $24000 = {(32-40)/((32+40)/2)} / {(10-8)/((10+8)/2)}

                                                    = -0.47

2) For income elasticity of demand, change in quantity demand is divided by change in income. Putting in the values

Income elasticity of deman @ $12 = {(30-24)/24}/{(24000-20000)/20000} = 1.25

Income elasticity of deman @ $16 = {(12-8)/8}/{(24000-20000)/20000} =  2.5

The elasticity of demand is the change in quantity due to economic factors such as price, salary, etc.

The price elasticity of demand, when price increases from $14 to $16 and

The income elasticity of demand when income increases from $20000 to $24000 and

(a): Price elasticity of demand

Price elasticity of demand is calculated as follows:

Where:

--- change in price

--- change in quantity

When price increases from $14 to $16 and income is $20,000;

We have:

So, we have:

So, we have:

When price increases from $14 to $16 and income is $24,000

We have:

So, we have

So, we have:

Hence, the price elasticity of demand, when price increases from $14 to $16 and

Solving (b): Income elasticity of demand

Income elasticity of demand is calculated as follows:

Where:

--- change in income

--- change in quantity

When income increases from $20000 to $24000 and price is $12

We have:

So, we have:

So, we have:

When income increases from $20000 to $24000 and price is $16

We have:

So, we have:

Hence, the income elasticity of demand when income increases from $20000 to $24000 and

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