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Lorena likes to play golf.

Lorena likes to play golf. The number of times per year that she plays depends on both the price of playing a round of golf as well as Lorena’s income and the cost of other types of entertainment—in particular, how much it costs to go see a movie instead of playing golf.

The three demand schedules in the table below show how many rounds of golf per year Lorena will demand at each price under 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. And in scenario D3, Lorena’s income goes up to \$70,000 per year, while movies cost \$11.

Scenario: D1 D2 D3
Income: \$50,000 \$50,000 \$70,000
Movie Price: \$9 \$11 \$11
Golf: Quantity Demanded Quantity Demanded Quantity Demanded
Price = \$50 15 10 15
Price = \$35 25 15 30
Price = \$20 40 20 50

a. Using the data under D1 and D2, calculate the cross elasticity of Lorena’s demand for golf at all three prices. (To do this, apply the midpoints approach to the cross elasticity of demand.)

Cross elasticity of Lorena’s demand at the price of \$50 =

Cross elasticity of Lorena’s demand at the price of \$35 =

Cross elasticity of Lorena’s demand at the price of \$20 =

Is the cross elasticity the same at all three prices?

Are movies and golf substitute goods, complementary goods, or independent goods?

b. Using the data under D2 and D3, calculate the income elasticity of Lorena’s demand for golf at all three prices. (To do this, apply the midpoints approach to the income elasticity of demand.)

Income elasticity of Lorena’s demand at the price of \$50 =

Income elasticity of Lorena’s demand at the price of \$35 =

Income elasticity of Lorena’s demand at the price of \$20 =

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Lorena likes to play golf. The number of times per year that she plays depends on both the price of
playing a round of golf as well as Lorena’s income and the cost of other types of...

This question was asked on Sep 17, 2011 and answered on Sep 18, 2011.

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