Question

3. Problem-solving exercises: (a) Use the arc-approximation formula to calculate the price-elasticity of demand coefficient of a firm's product demand between the (quantity, price) points of (12, $20) and (18, $16). (b) Calculate the cross-price elasticity of demand coefficient of a firm's product X, given that a 10% increase in the price of its close substitute, product Y, causes the quantity demand of product X to increase by 6%. c) Calculate the income-elasticity of demand coefficient for a product for which a 5% increase in consumers' income will increase the quantity demanded by 4%.

Answer 1

3) consider the above given that , , P.) = (18, * 2) la s Pa) = (18,8161 Avea elastiside E Com ho (7-2) (1672) = -118 crea elastisiy E= -1,8 a) cross price elasticity of derond to change in Price loy.. Price elesticity of denand = 0.6 It's indicate the the & goods are substitute " income elasticity of demand at change in quantity 1 % Change in income Yo sono 0.04 = 0.8 0.05

incorte elasticing of demand = +0.8 - it's inde cate "t've it's luxury goods if income elasticity of demand the relationship b/w the goods Luxury goody' are -