Question

Suppose the own price elasticity of demand for good X is -3, its income elasticity is 1, its advertising elasticity is 2, and the cross-price elasticity of demand between it and good Yis -4. Determine how much the consumption of this good will change if: Instructions: Enter your responses as percentages. Include a minus (-) sign for all negative answers. points a. The price of good X decreases by 5 percent. O percent eBook b. The price of good Yincreases by 8 percent. percent Print c. Advertising decreases by 4 percent. percent References O d. Income increases by 4 percent. O percent

Answer 1

a) Own price elasticity =%change in quantity/%change in price

-3=%change in quantity/(-5%)

Or % change in quantity =-3*(-5%)=15%

b) cross price elasticity withY=% change in quantity/% change in price of Y

-4=%change in quantity/8%

Or, % change in quantity =-4*8%=32%

c) advertising elasticity =% change in quantity/%change in advertising

Or, 2=% change in quantity/(-4%)

Or, change in quantity =2*(-4%)=-8%

d) income elasticity = % change in quantity/% change in income

1=% change in quantity/4%

Or % change in quantity =4%