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Assume Qx = 220 - 4Px + 3Po + 2.5Y, where Po is the price of...

Assume Qx = 220 - 4Px + 3Po + 2.5Y, where Po is the price of a related good and Y measures consumers' income. If Px = 150, Po =160, and Y = 120, what is the point price elasticity?

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Answer #1

Ans. Qx = 220 - 4Px + 3P0 + 2.5Y

Given: Px = 150, P0 = 160, and Y = 120

Plugging all these values into Qx function, we have

Qx = 220 - 4( 150 ) + 3(160 ) + 2.5 ( 120 )

Qx = 400

And

  

Then,

The point price elasticity of demand = % change in Quantity demand / % change in price

=  

= ( - 4 ) . 150/400

= - 1.5

Hence, the point price elasticity of demand is ( -1.5 ).

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