1. Use the following information to :

a. Compute income elasticity of demand if income increases from $10,000 to $15,000 and demand falls from 600 to 500. What kind of good is this? Using your computed value explain what happens to demand if income increases 11%.

b. Compute the cross elasticity of good X with respect to the price of good Y if the price of good Y increases from $100 to $120 and the demand for goodX increases from 2000 units to 4000units. What is the relationship between these two goods? Use price of good Y falls by 3%.

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Hubert KochLv2

20 Jul 2019

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Related questions

1. Suppose the price elasticity of demand for bread is 1.00. If the price of bread falls by 20%, the quantity demanded will increase by:

2. Suppose that a 20% decrease in the price of good Y causes a 20% increase in demand for good X. The coefficient of cross-price elasticity of demand is:

3. When the price of a quart of milk increased from $1.55 to $2.00 the quantity demanded decreased from 21,000 per day to 19,000 per day. In this range, the price elasticity of demand is:

4. If the elasticity of supply for crude oil is 0.5, how much will the price have to increase to increase production by 20%?

5. Demand for X increases from 100 to 125 when the price of Y increases from $5 to $6. The cross-price elasticity of demand is:

6. Demand for X increases from 100 to 125 when the price of Y increases from $5 to $6. The cross-price elasticity of demand is:

scarletmammoth434

Suppose that the extended (generalized) demand function for good Y is:

Q_d^Y= 250,000 - 500 P_Y -1.5 M + 240 P_X

where: Q_d^Y = quantity demanded of good Y

P_Y = Price of good Y

M = Average income of consumers

P_X = Price of related good X

a) If M = $ 60,000 and P_X = $100, what is the reduced demand function for good Y?

b) Continue using the reduced demand equation from part a,

If M = $60,000, P_X = $100, and P_Y = $200 then Q_d^Y = ________

If M = $60,000, P_X = $100, and P_Y = $300 then Q_d^Y = ________

Use this information (prices and quantities demanded of good Y) to calculate the price elasticity of demand between these two points on the demand curve of good Y. Show your work.

c) Use your answer to part b. Between these two points on the demand for good Y, is demand elastic, inelastic, or unitary price elastic? Why? What will happen to total revenues if the price increases between these two points on the demand curve?

d) In part b, you found that when:

M = $60,000, P_X = $100, and P_Y = $200 then Q_d^Y = ________

Now let's suppose that the price of the related good X decreases from $100 to $50 but income remains constant (at $60,000). Assume that the price of good Y is also constant at $200.

If M = $60,000, P_X = $50, and P_Y = $200 then Q_d^Y = ________

Use these prices of good X and the quantities demanded of good Y to calculate the cross-price elasticity of the demand for good Y when the price of good X decreases from $100 to $50.

e) Consider your answer to part d. Based on the value of the cross-price elasticity of demand you just estimated, are goods X and Y substitutes, complements, or unrelated? Why?

f) In part b, you found that when:

M = $60,000, P_X = $100, and P_Y = $200 then Q_d^Y = ________

Now let's suppose that consumer income increases from $60,000 to $80,000 but the price of good X remains constant (at $100). Assume that the price of good Y is also constant at $200.

If M = 80,000 , P_X = $100 and P_Y = $200 then Q_d^Y = _________

Use these income levels and quantities demanded of good Y to calculate the income elasticity of the demand for good Y when income increases from $60,000 to $80,000.

Show your work

g) Consider your answer to part f. Based on the value of the income elasticity of demand you just estimated, is good Y normal, inferior, or income independent?

erinalligator549

Suppose the demand for good X is given by Qxd = 500 – 10Px + 2Py + 0.7I, where Px is the price of good X. Py is the price of some other good Y, and I is income. Assume that Px is currently $10, Py is currently $5, and I is currently $100. What is the elasticity of demand for good X with respect to its price at the current situation? Interpret your result. What is the cross-price elasticity of the demand for good X with respect to the price of good Y at the current situation? What can you tell about X and Y. What is the income elasticity of demand for good X at the current situation? Comment on the type of good X.