The demand for good R is QRd = 10, 000 − 4PR + 5PT + 2M...
The demand for good R is QRd = 10, 000 − 4PR + 5PT + 2M + AR, where PR is the price of good R, PT is the price of good T, M is the buyers’ money income, and AR is the amount spent to advertise good R. Suppose PR = $50, PT = $100, M = $25,000, and AR = $1,000. The cross-price elasticity of goods R and T is:
-
−0.08.
-
None of the options.
-
−0.008.
-
0.008.
-
0.08.
Homework Answers
Q = 10000-4*50+5*100+2*25000+1000 = 10000-200+500+50000+1000 = 61300
P = 100
coefficient of the good = 5
Cross price elasticity = 5*100/61300 = 0.008
option(C)
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