The demand for boxes of nails is estimated to be Q = 185 – 10 p + 3 Y, where income is measured in thousands of dollars. If p = 5, and Y = 30,
a. What is the income elasticity? Interpret and explain your result. What type of good is this?
b. How would the income elasticity change if the price were increased to $9.50? Interpret and explain your result.
a.
income elasticity"=\\frac{\\%\\space \\Delta \\space in\\space Q\\space demanded}{\\%\\space \\Delta \\space in\\space income\\space level \\space Y}"
"e=\\frac{3(30)}{(185-10(5)+3(30)}"
"e=\\frac{90}{225}=0.4"
as income elasticity is greater than zero, the good type is normal
b.
if the price increased to $9.50
"e=\\frac{3(30)}{(185-10(9.5)+3(30)}"
"e=\\frac{90}{180}=0.5"
As price rises, the good becomes costly
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