Question

If Jack bought 12 DVDs last year when his income was $40,000 and he buys 14 DVDs this year when his income is $43,000, then his income elasticity of demand is ______________ which means that DVDs are a(n) ______________ good for Jack.

Answer 1

The income elasticity of demand for Jack's DVD purchases is 2.22, which is positive, indicating that DVDs are a normal good for Jack as his consumption increased with his income.

Step-by-step explanation:

If Jack bought 12 DVDs last year when his income was $40,000, and he buys 14 DVDs this year when his income is $43,000, we can calculate the income elasticity of demand (IED). To find the IED, we use the formula:

IED = (% Change in Quantity Demanded) / (% Change in Income)

First, we find the percentage change in quantity demanded

(14 DVDs - 12 DVDs) / 12 DVDs = 2 / 12 = 0.1667 or 16.67%

Next, we find the percentage change in income:

($43,000 - $40,000) / $40,000 = $3,000 / $40,000 = 0.075 or 7.5%

So the IED is:

16.67% / 7.5% = 2.22

An IED of 2.22, which is positive, indicates that DVDs are a normal good for Jack since his consumption of DVDs increases as his income rises.

Answer 2

His income elasticity of demand is 0.16 which means that DVDs are a(n) normal income elasticity of demand as it is less than 1

Step-by-step explanation:

In this question, we use the formula of income elasticity of demand which is shown below:

Income elasticity of demand = Percentage change in quantity demanded ÷ Percentage change in income

where,

Percentage change in quantity demanded is calculated by

= New Quantity - Old quantity ÷ New Quantity + Old quantity

= 14 - 12 ÷ 14 + 12

= 2 ÷ 26

= 0.07692

Percentage change in income is calculated by

= New income - Old income ÷ New income + Old income

= $43,000 - $40,000 ÷ $43,000 + $40,000

= $3,000 ÷ 63,000

= 0.47619

Now put these values over the above formula

So, the answer is = 0.07692 ÷ 0.47619 = 0.16

Hence, his income elasticity of demand is 0.16 which means that DVDs are a(n) normal income elasticity of demand as it is less than 1