## Demand for a Company’s Product

The demand for a company’s product is given by the equation Qdx = 75- 2 Px + 1.6Py + 0.5 I + 0.5Ax. If the given values for Px = 60, Py = 70, I = 30000, and Ax = 1000 are used, the income elasticity of demand is 1.12.

## Calculating the Income Elasticity of Demand

The income elasticity of demand is calculated by dividing the percentage change in the quantity demanded by the percentage change in income. The income elasticity of demand is equal to the ratio of the percentage change in the quantity demanded and the percentage change in income.

## Substituting Values into the Formula

To calculate the income elasticity of demand, the first step is to substitute the given values into the formula. If Px = 60, Py = 70, I = 30000, and Ax = 1000, the equation becomes: Qdx = 75- 2 (60) + 1.6(70) + 0.5 (30000) + 0.5 (1000) = 75 -120 +112 + 15000 + 500 = 16,412.

## Calculating the Percentage Change in Quantity Demanded

The next step is to calculate the percentage change in quantity demanded. This is done by subtracting the original quantity demanded from the new quantity demanded, and dividing that result by the original quantity demanded. In this case, the original quantity demanded is 75, and the new quantity demanded is 16,412. The percentage change in quantity demanded is 16,337/75 = 21.8%.

## Calculating the Percentage Change in Income

The final step is to calculate the percentage change in income. This is done by subtracting the original income from the new income, and dividing that result by the original income. In this case, the original income is 30000, and the new income is 30000 + 1000 = 31000. The percentage change in income is 1000/30000 = 3.3%.

## Calculating the Income Elasticity of Demand

The income elasticity of demand is calculated by dividing the percentage change in the quantity demanded by the percentage change in income. Thus, the income elasticity of demand is 21.8%/3.3% = 1.12.

## Related Questions

• What is the formula for calculating the income elasticity of demand?
• What is the equation for the demand for a company’s product?
• What are the steps for calculating the income elasticity of demand?
• What is the procedure for substituting values into an equation?
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