Question #54196

The Demand equation for a product is given by
Q=20I/P
Where I is the income and P is the price.
a) Write an equation for the point price elasticity. For what values of I and P is demand unitary elastic? explain
b) Write an equation for the point price elasticity. For what values of I and P is the good is necessity? Explain

Expert's answer

Q=20I/P

a) An equation for the point price elasticity is Ed = (∆Q/Q)/(∆P/P)

If I = 1/20 P, then the demand is unitary elastic.

b) An equation for the point price elasticity is Ed = (∆Q/Q)/(∆P/P)

If I > 1/20 P, then the good is necessity.

a) An equation for the point price elasticity is Ed = (∆Q/Q)/(∆P/P)

If I = 1/20 P, then the demand is unitary elastic.

b) An equation for the point price elasticity is Ed = (∆Q/Q)/(∆P/P)

If I > 1/20 P, then the good is necessity.

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