normal good

1. Define the following concepts

a. Price elasticity of demand

b. Cross price elasticity of demand

c. Income elasticity of demand

d. Price elasticity of supply

2. The following table shows a demand schedule for laptops, so you have information of prices and

their respective demand. Use that information to answer the questions below

Price laptops ($) Demand laptops A 500 125 B 600 120 C 700 100 D 800 70

a. Draw the demand curve

b. Compute the price elasticity of demand of laptops when the price grows from $500 to

$600. (Show the procedure)

The formula is 𝐸𝑝𝑥𝑑𝑥 = | ∆%𝐷𝑥

∆%𝑃𝑥 |

Where ∆%𝐷𝑥 = 𝐷𝑓−𝐷𝑖 𝐷𝑓+𝐷𝑖

2

And ∆%𝑃𝑥 = 𝑃𝑓−𝑃𝑖 𝑃𝑓+𝑃𝑖

2

c. What is the interpretation of the result of the computation of the price elasticity of

demand?

3. Answer the following questions

a. When price of laptops boosts, and the price elasticity of demand of laptops is lower than

1, what happens to the revenues of sellers of laptops? Do revenues increase, decrease or

they stay constant? (explain)

b. When price of ice cream increments, and the price elasticity of demand of ice creams is

1, what happens to the revenues of sellers of ice creams? Do revenues increase, decrease

or they stay constant? (explain)

4. The following table shows how demand of laptops of brand “PCA” changes when there are

changes in household income. Use that information to answer the questions below

Household income ($) Demand laptops A 2000 136 B 2200 104

a. Compute the income elasticity of demand when income decreases from $2200 to $2000

(show the procedure)

The formula is 𝐸𝐼𝑑𝑥 = ∆%𝐷𝑥

∆%𝐼

Where ∆%𝐷𝑥 = 𝐷𝑓−𝐷𝑖 𝐷𝑓+𝐷𝑖

2

And ∆%𝐼 = 𝐼𝑓−𝐼𝑖 𝐼𝑓+𝐼𝑖

2

b. Is the laptop of this brand an inferior or a normal good? (explain)

c. What is the interpretation of the result of the income elasticity of demand?