Course Home ourse htmicourseld 1489913080penVellumHMAC 32c33fca87f04 199e0f3dode

Question

Course Home ourse htmicourseld 1489913080penVellumHMAC 32c33fca87f04 199e0f3dodeSc35c15 10001 su De Homework jainah lape wood-Google Chvome ECON 201 FALL 2018 (1 jarah lape. wood I sal/18 532 AM 1201 Homework: Homework #2 konog Score: 0of 1 R1 3 of 20 (2 complete) Score: 920%, 186 of 20 pts Concept Check 5.5.1.2 auestion help * ber Anna Jones esnated te price elastkayofdemandfor new vehicles to be 084"tepke of cars iereased by 20%"would exped te quanty of new cars nanded to[_dbyDy (Enter your response rounded ble de places, at to w Sep 24 ew All A elcome t fore u need help Enter your and then click Check Answer All parts showing Clear All 2018 Pearson E

Explanation / Answer

Answer

Elasticity Of demand = % change in Quantity Demand / % change in Quantity Supplied

Elasticity Of demand = 0.84

As elasticity of demand is positive hence increase in price will result in increase in quantity demand i.e. They considered Cars as giffen good.

Using Above Formula

0.84 = % change in Quantity Demand / 20

Hence % Change in Quantity Demand = 20*0.84 = 16.8%

Hence If Price of Cars increased by 20% One would expect One would expect the quantity of new cars demanded to increase by 16.8%

Note

If Elasticity given is absolute value of original elasticity i.e. If elasticity is -0.84 but they have written 0.84 then Quantity will decrease and amount of decrease = 16.8% remains the same i.e. Quantity will decrease by 16.8%. But as it is written that elasticty of demand is positive then it should by giffen good

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