Question 1 (5 marks)

Suppose that your demand schedule for CD is as follows:

Price

Quantity demand (income =$10 000)

Quantity demand (income =$12 000)

$8

40

50

10

32

45

12

24

30

14

16

20

16

8

12

a)Calculate your price elasticity of demand as the price of CD increases from $8 to $10 if i) your income is $10 000 and ii) your income is $12 000.(2.5 marks)

b)Calculate your income elasticity of demand as your income increase from $10 000 to 12 000 if i) the price is $12 and ii) the price is $16.

(2.5 marks)