III. Below is a list of own-price elasticities for various categories of goods.
ID: 1139949 • Letter: I
Question
III. Below is a list of own-price elasticities for various categories of goods. What do each of these elasticities mean? What does each one tell us about that category of goods? Ca Personal goods Personal care Internet-wireless 1.23 Jensen/de Boer 1.28 Jensen de Boer 1.29 .1.35 Jesse de Boer 1.42 Jensen de Boer 2.17 0.27 0.27 Sidak Restaurant meals Club Other vehicles Tableware Kitchen appliances 0.40 Furniture Airfare Te Furnishings Jewelry & watches Men's clothes Edacation Testiles Sporting goods Almon 0.41 0.48 0.61 Akmon Almon Almon Akmon 0.79 0.80 0.S0 0.S0 Jensen de Boer 0.81 0.84 Jensen de Boer 0.87 0.90 Jensen de Boer 0.97Jensen de Boer 1.02Jensen'de Boer 1.12 Jensen de Boer 1.17 Kim USDA Nelson machines McCarthy Soft drinks Leisure equipment DVD: CDs NelsonExplanation / Answer
III).
Consider the given problem here the “own-price elasticity” of demand is measure how quantity demanded respond to a change in its own price, => how much quantity demanded will change due to “1%” change in its “own-price”. Now, if the absolute value of elasticity is more than “1”, => the good is relatively elastic demand, => “quantity demanded” respond more than it “own-price”.
So, here for “personal goods” the elasticity is “-1.23”, => the quantity demanded for “personal good” will decreases by “1.23%” if price increases by “1%”. Now, as the absolute value of elasticity is “1.23 > 1”, => “personal goods” have relatively elastic demand.
Similarly, for “personal care” the elasticity is “-1.28”, => the quantity demanded for “personal care” will decreases by “1.28%” if price increases by “1%”. Now, as the absolute value of elasticity is “1.28 > 1”, => “personal care” have also relatively elastic demand.
Now, for “Club memberships” the elasticity is “-0.27”, => the quantity demanded for “Club memberships” will decreases by “0.27%” if own-price increases by “1%”. Now, as the absolute value of elasticity is “0.27 < 1”, => “club memberships” have relatively inelastic demand.
Similarly, for “Other vehicles” the elasticity is “-0.27”, => the quantity demanded for “Other vehicles” will decreases by “0.27%” if own-price increases by “1%”. Now, as the absolute value of elasticity is “0.27 < 1”, => “Other vehicles” have relatively inelastic demand.
So, in the same way we can explain the elasticity for the rest of goods.
IV).
Now, the “income elasticity” of demand is measure how quantity demanded respond to a change in its income, => how much quantity demanded will change due to “1%” change in its “income”. Now, if the income elasticity of demand is negative, => as the income of the individual increases leads to decrease the quantity demanded, => the good is a “inferior good”. Similarly, if the income elasticity of demand is positive and less than “1”, => as the income of the individual increases by “1%” leads to increase the quantity demanded by less than “1%”, => the good is a “normal good”.
So, here for “Meat Packing” the elasticity is “0.03”, => if income increases by “1%” the quantity demanded will also increases by “0.03%” and as the elasticity is less than “1”, => the good is normal good.
Similarly, for “Sausages & Prepared Meats” the elasticity is “0.635”, => if income increases by “1%” the quantity demanded will also increases by “0.635%” and as the elasticity is less than “1”, => “Sausages & Prepared Meats” is normal good.
Finally, for “Creamery butter” the elasticity is “-0.939”, => if income increases by “1%” the quantity demanded will also decreases by “0.939%” and as the elasticity is negative, => “Creamery butter” is an inferior good.
So, in the same way we can define the same thing for rest of the goods.