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Unformatted text preview: 11 -2 -22 (P 2 A + P 1 A ) / 2 9 D and A are complements. 2 (c) Classify goods A and C. Explain the relationship, if any, between these two goods : As P A goes down the Q C goes down, therefore A and C are substitutes. (d) Calculate the income elasticity for good C. (Again, include the appropriately specified formula.) Q 2 C- Q 1 C -4 Elastic demand. (Q 2 C + Q 1 C ) / 2 8 -4 5,500 -22,000 E I = = = x = = - 2.75 I 2- I 1 1,000 8 1,000 8,000 (I 2 + I 1 ) / 2 5,500 C is an inferior good. (e) Classify good B as it relates to the consumers income. Explain how you reached this conclusion : As income rises consumers buy same amount of good B E I = 0 and good B is a neutral good....
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- Fall '09