Question

Suppose that the demand function for good *x* is given by
x = 10 - 2p_{x} + p_{y} + 0.5*M*, where
*M=10* is income and p_{x} = 2 and p_{y} =
5.

(a) Calculate the own price elasticity of demand.

(b) Calculate the cross price elasticity of demand. Are the goods substitutes or complements?

(c) Is the good normal or inferior? Calculate the income elasticity of demand.

(d) Is the good a necessity or a luxury?

Answer #1

a) To calculate own Ped, increase price of X keeping others constant, formula = %change in Q/%change in Px

X | Px | Py | M | %change in Qx | %change in Px | Ped | |

16 | 2 | 5 | 10 | ||||

14 | 3 | 5 | 10 | -0.125 | 0.5 | -0.25 |

b)

X | Px | Py | M | %change in Qx | %change in Py | Ped | |

16 | 2 | 5 | 10 | ||||

17 | 2 | 6 | 10 | 0.0625 | 0.2 | 0.3125 |

Since elasticity is positive, the goods are substitute

c)

X | Px | Py | M | %change in Qx | %change in Px | Ped | |

16 | 2 | 5 | 10 | ||||

16.5 | 2 | 5 | 11 | 0.03125 | 0.1 | 0.3125 |

with the increase in income quantity demanded increases and hence it is nomrla good

d) It is a necessity as own price elasticity is negative

Suppose the demand function for ice cream (good X) is given by
Qx^d= 1200-5Px-0.08Pz+0.04M+3A where Px =$40, Px=$100, M=3000, A=
700, Z is a related good, M is income and A is the level of
advertising. •determine the own price elasticity, and whether the
demand is elastic, inelastic, or unitary elastic? What should
managers do to increase their profits? • determine the cross price
elasticity between good X and good Z and state whether they are
substitutes, or complements and...

If the cross-price elasticity of demand between two goods is
-0.5, two goods are __________. If the income elasticity of a good
is -2, that good is a ___________.
Substitutes: Normal good
Complements: Inferior
Complements: Necessity
Substitutes: Luxury

Question 6 The demand for good x is given by x ∗ = 60 − 4Px + 2M
+ Py, where Px is the price of good x, Py is the price of good y,
and M is income. Find the own-price elasticity of demand for good x
when Px = 20, Py = 20, and M = 100. Is x an ordinary or giffen
good? Explain.
Question 7 The demand for good x is given by x ∗ =...

Price Elasticity of Demand for good X: −0.34
Income Elasticity of Demand for good X: 0.56
Cross Price Elasticity of Demand for goods X and Y: 0.04
Given the information above, determine the following:
1. whether good X is elastic, unit elastic, or inelastic
2. whether good X follows the “law” of demand
3. whether good X is normal or inferior
4. whether good X is a luxury or a necessity
5. whether good X and good Y are complements,...

Suppose the demand curve for good X is of the form:
qx=1000 + I – 50px -20py. Suppose,
px=$10, py=$10, and income (I)=$100.
1)
Cross price elasticity of demand between X and Y = -1/2, and X
and Y are complements.
2)
Cross price elasticity of demand between X and Y = 1/2, and X
and Y are complements.
3)
Cross price elasticity of demand between X and Y = -1/2, and X
and Y are substitutes.
4)
Cross price...

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...

Suppose demand is given by Q xd = 50 −
4Px + 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...

Consider the utility function U ( x,y ) = min { x , 2y }.
(a) Find the optimal consumption choices of x and y when I=50,
px=10, and py=5.
(b) The formula for own-price elasticity of x is
εx,px = (−2px/2px +
py) For these specific values of income, prices, x and
y, what is the own-price elasticity? What does this value tell us
about x?
(c) The formula for cross-price elasticity of x is
εx,py = (py/2px +...

Question 4
a. Explain own price, cross price and income elasticities of
demand and how they are measured.
b. Suppose the demand function facing a company manufacturing a
particular product (X) is given by
Qx = 62 -2Px + 0.2M + 25A
Where:
Px is the price of the product
M is the consumer income, and
A is the amount of advertising expenditure.
If Px is 4, M is 150 and A is 4
You are required to calculate:
i....

1- The demand for
good X is estimated to be Qxd = 10,000 −
4PX + 5PY + 2M + AX where
PX is the price of X, PY is the price of good
Y, M is income, and AX is the amount of advertising on
X. Suppose the present price of good X is $50, PY =
$100, M = $25,000, and AX = 1,000 units. What is the
quantity demanded of good X?
Multiple Choice
61,500
61,300
61,300...

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