a Suppose the quantity of fish purchased by Mr Singhs family

(a) Suppose the quantity of fish purchased by Mr. Singh’s family is 21 kilos per year when the price is $11.50 per kilo, and 17 kilos per year when the price is $20.50 per kilo.

Calculate the price elasticity of demand coefficient for Mr. Singh’s family.
(b) What are the four main determinants of price elasticity of demand?
(c) What do you understand by income elasticity of demand? What types of good or services _____ ? the income elasticity of demand would be positive and negative? Give examples for both to support your answer.

Solution

a)

Q

P

%change in Q

%change in P

Ed

21

11.5

17

20.5

-0.19

0.78

-0.24

b) Four determinants:
1. The price of the good or service
2. Prices of related goods
3. Income
4. Tastes and preferences

c) Income elasticity is the change in the quantity consumed for a change in income of individual
Types of goods or services include: Normal, inferior good

Bread is an inferior good and the income elasticity is negative, as income increases people would consume less of bread

Petrol can be considered as normal good, with the increase in income people would consume more of petrol