This blog is here to help you understand basic economic concepts. Make use of the videos, infographics, quizzes and posts to help you understand. I'm here to teach you, the next generation of economists, one video at a time.
Question 2: Use the formula ((delta)Q%/(delta)Y% )= 3.5 Delta Y = change in income(Y) thus substitute it with the 20 then solve for Q%. If the answer is larger than 1 the item is regarded as a luxury-item; between 0 and 1 it's a necessity.
Question 3: Using the standard bow-formula, but remember that with cross-price elasticity the Quantities of A(Coke) and the Prices of B(Chips) are used. The answer should be 1 OR -1. If it's 1 then the items are Substitutes; if it's -1 then the items are Complimentary.
IN regards to question 2, you could use the formula, but thats not what they asked if you read closely. they ask what type of product it is, which if you look at your theory you will see that it has an elasticity of greater then 1 which means that it is a luxury good.
how is question 2 and three done?
ReplyDeleteQuestion 2:
ReplyDeleteUse the formula ((delta)Q%/(delta)Y% )= 3.5
Delta Y = change in income(Y) thus substitute it with the 20
then solve for Q%. If the answer is larger than 1 the item is regarded as a luxury-item; between 0 and 1 it's a necessity.
Question 3:
Using the standard bow-formula, but remember that with cross-price elasticity the Quantities of A(Coke) and the Prices of B(Chips) are used.
The answer should be 1 OR -1.
If it's 1 then the items are Substitutes;
if it's -1 then the items are Complimentary.
IN regards to question 2, you could use the formula, but thats not what they asked if you read closely. they ask what type of product it is, which if you look at your theory you will see that it has an elasticity of greater then 1 which means that it is a luxury good.
Delete