Suppose the "poor" and "rich" have identical demand functions for good X but only differ in income (I) $q _ { X } = 1000 + I - 50 P _ { X } - 20 P _ { Y }$ .At a given price of X,the price elasticity of their individual demand curves is such that?
A)the rich person's demand is more elastic than the poor person's.
B)the poor person's demand is more elastic than the rich person's.
C)the poor person's demand is as elastic as the rich person's.

Question

Quizplus · Accepted Answer

The price elasticity of demand is defined as the percentage change in quantity demanded divided by the percentage change in price. In this case, the demand function is linear, so the price elasticity of demand is constant. The price elasticity of demand is equal to the negative of the slope of the demand curve. The slope of the demand curve is -50 for both the poor and the rich, so the price elasticity of demand is -50 for both the poor and the rich. Therefore, the poor person's demand is more elastic than the rich person's.

Suppose the "Poor" and "Rich" Have Identical Demand Functions for Good