The economics of A national cinema chain.

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Economics

Ela Topcuoglu

11NG

A national cinema chain has the following information:

  1. the income elasticity of demand for visits to the cinema is +2.5.

Income elasticity of demand measures the responsiveness of the quantity demanded of a good to the change in the income of the people demanding the good. It is calculated as the ratio of the percent change in quantity demanded to the percent change in income. If a good has a YED  > 1 then it is an elastic good (luxury good), which means that consumers are able to refrain from these goods and instead invest in substitues, especially when the price of an elastic good is increased. Therefore the YED for visits to the cinema is +2.5 when there is a 25% change in demand and a 10% increase in income, this can be justified through the formula used to measure income elasticity of demand: In response to a 10% increase in income, the quantity of a good demanded increased by 25%, therefore the income elasticity of demand would be :

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25%/10% = 2.5

(ii) the price elasticity of demand for visits to the cinema is -2.3

Price elasticity of demand is defined as the meausre of responsiveness in the quanity demanded for a good as a result of change in price of the same good. Namely, it is percentage change in quantity demanded as per the percentage change in price of the same good. In economic terms it is a mesaure of the sensitivity of quanitiy demanded to changes in price. It is measured as elasticity, becuase it measures the relationship as the ratio of percentage changes ...

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