Question

Suppose the own price elasticity of demand for good X is -2, its income elasticity is 3, its advertising elasticity is 4, and the cross-price elasticity of demand between it and good Y is -6. Determine how much the consumption of this good will change if for the following:

A) The price of good X decreases by 5 percent.

B) The price of good Y increases by 10 percent.

C) Advertising decreases by 2 percent.

D) Income increases by 3 percent.

Answer 1

A) quantity demanded of X changes by -2(-5) = 10%

B) quantity demanded of X changes by -6(10)= -60%

C) quantity demanded of X changes by 4(-2) = -8%

D) Quantity demanded of X changes by 3*3= 9%