Question 6

Assume the income for Mr. D has changed from K10, 000 to K18,000, effective December 2016. Because of this change, he can now buy 6 whole chickens at K45 each when initially he was only buying 2 chickens per month. He is also able to pay his debt of K3,000 he owed Mr. Tembo. Mr. Tembo also takes his 4 children out for pizza which is worth K300.

a) Define elasticity of demand?

b) Analyze the types of elasticity that you know and their relevance in our Zambian economy.

c) Calculate the responsiveness of income to chickens bought by Mr. D in the month of December 2016.

d) Discuss the use or application of cross elasticity of demand in our Zambian economy.