1. The demand curve for a product is given by: Qx^d = 1,000 - 2Px + 0.2Pz where
ID: 1093434 • Letter: 1
Question
1. The demand curve for a product is given by:
Qx^d = 1,000 - 2Px + 0.2Pz where Pz = $400
a. What is the price elasticity of demand for Q^d when Px = $354? Is the demand elastic or inelastic at this price? What would happen to the firm's revenue if it decided to charge a price above $354?
b. What is the cross price elasticity of demand between good X and Good Z when Px = $154? Are goods X and Z substitutes or complements?
2. 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:
a. The price of good Y increases 10%.
b. Advertising falls by 2%.
c. Income falls by 3%.
Explanation / Answer
a. What is the own price elasticity of demand when Px= $354? Is demand elastic or inelastic at this price? What would happen to the firm
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