1
$\begingroup$

If I always spend a total of exactly $\\\$10$ per week on coffee, then does my demand function have unit elasticity?

According to me, the change in income doesn't affect my coffee consumption, so it does not seem like unit elasticity. Can someone help me understand this?

$\endgroup$
1
  • 1
    $\begingroup$ Could you please clarify two points: 1) Do you mean exactly \$10 per week whatever the price of coffee that week may be? 2) Are you asking about price elasticity of demand or income elasticity of demand? $\endgroup$ May 23 at 12:48
4
$\begingroup$

Assuming you mean unit elasticity of demand with respect to price the answer is yes.

From the information you have, we can deduce that the demand function is as follows:

$$Q^d(p)=10/p$$ (I always spend $\\\$ 10$ on coffee, which buys me exactly $10/p$ units of coffee, where $p$ is the price of coffee).

Now recall the formula for computing elasticity of demand with respect to price:

$$\varepsilon \equiv \frac{dQ^d}{dp} \frac{p}{Q^d}$$

And the rest I leave to you.

$\endgroup$

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Not the answer you're looking for? Browse other questions tagged or ask your own question.