The general linear demand for good X is estimated to be Q=250000-500P-1.5M-240PR Where P is the...
The general linear demand for good X is estimated to be
Q=250000-500P-1.5M-240PR
Where P is the price of good Q, M is average income of consumers who buy good Q, and PR is the price of related good R.
The values of P, M, and PR are expected to be $200, $60,000, and $100, respectively. Use these values at this point on demand to make the following computations.
A. Compute the quantity of good Q demanded for the given values of P, M, and PR .
B. Calculate the price elasticity of demand ED at this point on the demand for Q, is demand elastic, inelastic, or unitary elastic? How would increasing the price of Q affect total revenue? Explain.
C. Calculate the income elasticity of demand EM. Is good Q normal or inferior? Explain how a 4% increase in income would affect demand for Q, all other factors affecting the demand for Q remaining the same.
D. Calculate the cross-price elasticity EQR. Are the goods Q and R substitutes or complements? Explain how a 5 percent decrease in the price of related good R would affect demand for Q, all other factors affecting the demand for Q remaining the same.
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The general linear demand for good X is estimated to be
Q=250000-500P-1.5M-240PR
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