Question

2. The annual market own-price demand function for good X is estimated as X=142-5PX-1 -3.5 Py where X quantity demanded of good X in units/year Px = price of good X in dollars/unit per capita income in dollarsyear Py price of good Y in dollars/unit a) Calculate the market (own-price) demand curve when I = 25 and Py =12 b) Using your results from part a), calculate the quantity of good X demanded in the market when PX-10 c) Calculate the own price elasticity of demand for good X when Px 10. Py 12 and 25. Interpretit d) Calculate the cross-price elasticity of demand for good X assuming Px = 10, Py = 12 and I = 15. Interpretit e) How can a seller use the cross-price elasticity of demand you computed in part d)

Answer 1

X=142-5 lx-I-3.5 by x = 142-5l-25 -3.5 (12) x= 142-25 – 42-5k (x=75-51 x) b) when Px=10 x=85-5110)=25 c) ax = -5 clasticity = -5xl - SX10-2 d) X= 142-5110 -15 -3.5 (12) 1x=35 Crossprice elasticity = ax by oly * = -3.5*12 -1.2 c) good X 4 Y are complemtary good because of the cross puis élasterity of demand.