Answer Happy

Lorena likes to play golf. The number of times per yearthat she plays depends on both the price of playing a round of golfas well as Lorena’s income and the cost of other types ofentertainment—in particular, how much it costs to go see a movieinstead of playing golf. The three demand schedules in thetable below show how many rounds of golf per year Lorena willdemand at each price under three different scenarios. Inscenario D 1, Lorena’s income is $50,000 per yearand movies cost $9 each. In scenario D 2,Lorena’s income is also $50,000 per year, but the price of seeing amovie rises to $11. And in scenario D 3, Lorena’sincome goes up to $70,000 per year while movies cost $11.
QUANTITYDEMANDED
PRICE D1 D2 D3
$60 20 15 20
$40 30 20 35
$20 45 25 55
a. Using the data under D 1 andD 2, calculate the cross elasticity of Lorena’sdemand for golf at all three prices. (To do this, apply themidpoints approach to the cross elasticity of demand.) Is the crosselasticity the same at all three prices? What is each crosselasticity? 2 pts each. Are moviesand golf substitute goods, complementary goods, or independentgoods? 2 pts.
b. Using the data under D 2 andD 3, calculate the income elasticity of Lorena’sdemand for golf at all three prices. What are the 3elasticities? 2pts each. (To do this, apply the midpointsapproach to the income elasticity of demand.) Is the incomeelasticity the same at all three prices? Is golf an inferior good?1 pts Total possible: 15 pts