Problem: Assume that your demand schedule for cell phone applications is as shown below:
Quantity Demanded per Quantity Demanded per Year
Year Price per Application (income = $40,000 per year) (income = $50,000 per year)
$2 60 70
4 52 59
6 44 50
8 32 42
10 24 30
Q1. Calculate the price elasticity of demand as the price of a cell phone application decreases from $6 to $4 if your income is: (i) $40,000 per year, and (ii) $50,000 per year. Is the price elasticity of demand elastic, inelastic or unitary elastic? Briefly explain
Q2. Calculate the income elasticity of demand as your income increases from $40,000 to $50,000 if: (i) the price per cell phone application is $6, and (ii) the price is $8. Is the income elasticity of demand high, low or unitary? Briefly explain.