Elasticity

Lorena likes to play golf.How many times per year she plays depends on three things:

(1)the price of playing a round of golf,

(2)her income, and

(3)the price of other types of entertainmentin particular, how much it costs to see a movie instead of playing golf.

The three demand schedules in the table below (D₁, D₂, D₃) show how many rounds of golf per year Lorena will demand at each price ($50, $35, and $20) in three different scenarios:

In scenario D1, Lorena's income is $50,000 per year and movies cost $9 each.

In scenario D2, Lorena's income is also $50,000 per year, but the price of seeing a movie rises to $11.

In scenario D3, Lorena's income goes up to $70,000 per year while movies cost $11.

PRICE D1 D2 D3

$50 15 10 15

$35 25 15 30

$20 40 20 50

(a)Using the data under D₁and D₂

(i)Calculate thecrosselasticityof Lorena's demand for golf at all three prices

(ii)Is the cross elasticity the same at all three prices?

(iii)Are movies and golf substitute goods, complementary goods, or independent goods?

(b)Using the data underD₂and D₃

(i)Calculate theincome elasticityof Lorena's demand for golf at all three prices.

(ii)Is the income elasticity the same at all three prices?

(iii)Is golf an inferior good?