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Table 7.4 Estimated Direct Price Elasticity of Demand by Income Group, Cali, Colombia, 1969-1970 Low Income High Income I II III IV V Averaged Cassava
| Table 7.4 Estimated Direct Price Elasticity of Demand by Income Group, Cali, Colombia, 1969-1970 | ||||||
| Low Income | High Income | |||||
| I | II | III | IV | V | Averaged | |
| Cassava | -.23 | -.28 | -.25 | -.00 | -.00 | -.19 |
| Potatoes | -.41 | -.42 | -.31 | -.00 | -.00 | -.26 |
| Rice | -.43 | -.40 | -.40 | -.26 | -.18 | -.35 |
| Maize | -.63 | -.55 | -.44 | -.00 | -.00 | -.44 |
| Bread/pastry | -.65 | -.56 | -.32 | -.24 | -.00 | -.31 |
| Beans | -.82 | -.78 | -.64 | -.45 | -.25 | -.60 |
| Peas | -1.13 | -1.13 | -.76 | -.59 | -.52 | -.70 |
| Eggs | -1.34 | -1.23 | -1.26 | -.75 | -.35 | -.92 |
| Oranges | -1.39 | -.96 | -.79 | -.64 | -.29 | -.69 |
| Milk | -1.79 | -1.62 | -1.12 | -.64 | -.20 | -.77 |
| Pork | -1.89 | -1.61 | -1.12 | -.82 | -.70 | -1.01 |
| Daily calorie intake as percentage of requirement | 89 | 99 | 117 | 132 | 1,718 | 119 |
- (5 points) Now let's work this through the other way: What happens to the quantity demanded by each income group when the price of rice, for example falls by 10%.
[don't panic, read the instructions]
- First, just apply the formula even if you don't understand it
- We know elasticity = (%Change in Quantity)/(%Change in Price)
- We know %Change in Quantity = elasticity * (%Change in Price)
- And we know %Change in Price = %Change in Quantity/ Elasticity
[Now try to answer these questions one by one:
- Which of the above three formulae (which are all different versions of the same equation) is the right one to use to solve this problem?
- Which elasticity of demand estimates for rice should you use (there are 6 of them in the table)?
- What is the answer for each group (from the math)?
- I
- II
- III
- IV
- V
- What does this number mean? In other words, complete the sentence "if the price falls by 10% ....."
- How did this happen? How does a change in the price change the quantity demanded? (Economists, note there has been no change in the demand curve, so just interpret movement along the demand curve, not movement of the demand curve).
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Microeconomics
Authors: Paul Krugman, Robin Wells
4th Edition
1464143870, 9781464143878
