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Consider a hypothetical consumer, Richard, who spends all his income on two food items: pizzas and burritos:

a) If Richard spends 40% of his income on burritos and his income elasticity of demand for burritos is 2, what is his income elasticity of demand for pizzas?

b) Whenever the price of any of the goods increase, Richard gives a call to his rich uncle who immediately transfers funds to him so that Richard's utility remains constant. Assume the price of burritos increased by 20%, and even after Richard is compensated by his uncle, his demand for burritos declined by 20%. What is Richard's ordinary (Walrashian) price elasticity of demand for burritos?

Econometrics, Economics

  • Category:- Econometrics
  • Reference No.:- M9471182

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