Question

Suppose demand is given Qxd = 50 - 4 Px + 6Py + Ax, where Px...

Suppose demand is given Qxd = 50 - 4 Px + 6Py + Ax, where Px =$4, Py =$2 and Ax = 50.

(a) What is the quantity demanded of good X? Please show your calculations.

(b) what is the own price elasticity of demand (point elasticity) when Px = $4? Is demand elastic or inelastic at this price? Please explain.

(c) What is the cross price elasticity of demand between good X and good Y when Px = $4 (point elasticity)? Are goods X and Y substitutes or complements? Please explain.  

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Answer #1

positive cross price elasticity implies as the price of good y increase the demand for good x increase so this positive relation implies goods are substitutes !

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