Situation 1 Situation 2

Product Price Demand Product Price Demand

Can of Coke 1 6 Can of Coke 1 4

Snickers Bar 1 5 Snickers Bar 2 3

Kitkat 1 10 Kitkat 1 12

Carton of milk 1 9 Carton of milk 1 8

Income 5 5
 Situation 3
Product Price Demand
Can of Coke 1 7

Snickers Bar 1 12

Kitkat 1 14

Carton of milk 1 15

8
 Considering Situation 1 and Situation 2, Price of Snickers Bar changed from $1 to $2 (other factors cons
Snickers
Price Market Quantity Deanded
1 5
2 3 2.5
change -1 2
2
elasticity -0.4
Less elastic/ ineleastic demand as Ed<1 1.5

Price
1
for other products, we cannot find price elasticity as the price is not changing
0.5

equation of this demand curve (using 2 pouint form of a line) 0

2.5
P-1 = (Q-5)/-2
FINALLY Q = 7-2P
m $1 to $2 (other factors constant) and only for that product we can make a price elasticity curve

Market Demand curve for Snickers

2.5

2 2; 2

1.5
Price

1 1; 1

0.5

0
2.5 3 3.5 4 4.5 5 5.5
Quantity Demanded
 Since income changes from situtaion 1 to 3 (with other things like price constant)

THE GRAPH WILL SHIFT PARALLELY

THEREFORE SLOPE REMAINS SAME
SLOPE -0.5
NEW DEMAND CURVE WILL PASS THROUGH (12,1)
EQUATION OF NEW DEMAND CURVE (USING POINT SLOPE) Q = 14-2P
ANOTHER POINT THROUGH THE CURVE CAN BE 10,2

INCOME ELASTICITY 2.33333333333333

ICOMMENT INCOME INELASTIC
taion 1 to 3 (with other things like price constant) we will consider these two as in situation 2 price of snickers is changing

Snickers Bar
Price Income Market Quantity Demanded
1 5 5
1 8 12
CHANGE 3 7

OLD DEMAND CURVE OF SNICKERS

Price Quantity
1 5
2 3

SHIFT IN DEMAND CURVE OF SNICKERS DUE TO INCREASE IN

INCOME

2.5
THEREFORE WE SEE A PARALLEL SHIFT
2 2; 2 2; 2

1.5
Price

1 1; 1 1; 1

0.5

0
2 4 6 8 10 12 14
Quantity
tuation 2 price of snickers is changing

New demand curve of snickers after increase in income

price demand
1 12
2 10

OF SNICKERS DUE TO INCREASE IN

2; 2

1; 1

6 8 10 12 14
Quantity
 Cross price elasticity can be found out only for Snickers as only the price of Snickers bar is

price of snickers quantity of kitkat

1 10
2 12
change 1 2
elasticity 0.2
nature of the product wrt Snickers Substitute

Cross price elasticity (Snickers- Kitkat) Cross p

2.5 Coke)
2 2; 2 2.5
Price (Snickers)

Price (Snickers)
1.5
1.5
1 1; 1
1
0.5 0.5

0 0
9.5 10 10.5 11 11.5 12 12.5 3.5

Quantity (kitkat)
the price of Snickers bar is changing (USING STI. 1 AND 2)

price (snickers) quantity of coke price of snickers

1 6 1
2 4 2
1 -2 1
-0.333333333333 -0.1111111111111
Complement Complement

Cross price elasticity (Snickers- Chart Title

Coke) 2.5

2.5 2 2; 2
2 2; 2
Price (Snickers)

1.5 1.5

1 1; 1
1
0.5
0 0.5
3.5 4 4.5 5 5.5 6 6.5
Quantity (Coke) 0
7.8 8 8.2 8.4 8.6 8.8
 quantity of milk
9
8
-1

Chart Title

2; 2

1; 1

8.2 8.4 8.6 8.8 9 9.2

P P' Q Q' CHANGE IN P/P
0 0.1 8 7.8 INFINITY
1 1.1 6 5.8 0.1
2 2.1 4 3.8 0.05
3 3.1 2 1.8 0.033
4 4.1 0 -0.8 0.025
CHANGE IN Q/Q ELASTICITY
-0.025 0
-0.033 3.33
-0.05 -1
-0.1 -3.033
INFINITY INFINITY