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Question 6 The demand for good x is given by x ∗ = 60 − 4Px...

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 ∗ = 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 cross-price elasticity of demand for good x when Px = 20, Py = 20, and M = 100. Are x and y complements or substitutes? Explain.

Question 8 Imagine you work at Nike estimating the demand for shoes. Your boss tells you that due to new import tariffs, you need to increase the price of your product by 20%. She asks you to calculate what the percentage impact of this will be on sales. What should you calculate?

Homework Answers

Answer #1

Answer 6) Own price elasticity= -0.4

Since own price elasticity is negative,X is ordinary good.

Answer 7) Cross price elasticity= 0.1

Since cross price elasticity is positive X and Y are Substitutes

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