Question

Calculate the price and cross-price elasticities of demand for coconut oil. The coconut oil demand function (Buschena and Perloff, 1991) is Q = 1,200 − 9.5p + 16.2pp + 0.2Y, where Q is the quantity of coconut oil demanded in thousands of metric tons per year, p is the price of coconut oil in cents per pound, pp is the price of palm oil in cents per pound, and Y is the income of consumers. Assume that p is initially 47¢ per pound, pp is 20¢ per pound, and Q is 1,233 thousand metric tons per year. The price elasticity of demand is . (Enter a numeric response using a real number rounded to three decimal places.) The cross-price elasticity of demand (with respect to the price of palm oil) is . (Enter a numeric response using a real number rounded to three decimal places.)

Answer 1