One doubt
P0=70 I=1200 Qd=5000
P1=76 I=1300 Qd=6000
Calculate ed & eI?
# if we cannot calculate ed and ei then what’s the reason?
Because ed if we calculate it’s 2.33 nd ei is 2.40
One related question for this
The price of a comm. Went down by 10% at the same time income of the consumer went up by 5%. If ed=1.2, calculate eI. Given that demand for the comm. Gone up by 20%.
Here if we calculate eI it comes to notice that we have to find out how much demand is changed due to change in price then we have remaining qty which is changed due to income
I.e ∆Qx due to price = 12 (ed given is 1.2)
Therefore 20-12=8% in ∆Q due to income.
And hence eI= 8/5= 1.6
My question is why we first have to find the change in quantity demanded due to change in price and then calculate the remaining for change in quantity demanded because of change in income because if we see the 1st question where I mentioned ed = 2.33 and eI = 2.4 can’t we say that 2.4- 2.33= 0.070 is change in qty demanded because of change in income.
Hope you understand what I’m trying to say.
For calculating Ed, all other factors like income, cross prices should all be constant(ceteris paribus). This is not the case in that data you’ve updated.
Unable to follow the second part of the question clearly.
but, % change in quantity is due % change in own price and % change in income.
due to change in own price(10% dec) and Ed=1.2, quantity demanded will increase by 12%. We are given total quantity increase =20%. So, due to income change, quantity changes by 8%. Now, EI=% change in q/% change in I
so, EI=8/5=1.6
not sure why you’re worried about the order of operations since you can only do it in this order, because ei isn’t given.