How Does the Consumer Respond to change? - Elasticities of Demand

Authors Avatar

How Does the Consumer Respond to change?

Elasticities

Income Elasticity of Demand

  1. Copy the following

The theory of demand has already demonstrated that as income changes people will change their spending patterns.  They will buy more of some things and less of others.  The relationship between income and demand for a product is known as the income elasticity of demand.  It refers to the responsiveness of demand to changes in income.  The following formula is used to enable one to determine the exact relationship in terms of its elasticity.

Join now!

      0/0 change in the quantity demanded____

0/0 change in income

The following table provides explanations of how to interpret the result of an income elasticity calculation.  (Copy table M2.23 on page 124)

  1. Complete the following tasks
  • Look at the calculation provided on page 124.  Copy it and explain it in your own words.
  • Adapt the figures in the example to get an elasticity of between 0 and 1.  Explain what you have done and the meaning of your elasticity figure.
  • Adapt the figures again but this time to get a negative elasticity.  Explain what you ...

This is a preview of the whole essay