Suppose the own priceelasticity of demand for good X is -2, its income elasticit

Question

Suppose the own priceelasticity of demand for good X is -2, its income elasticity is 3,its advertising elasticity is 4, and the cross- price elasticity ofdemand between it and good Y is -6. Determine how much theconsumption of this good will change if:

a. The price of good X increases by 5 percent.

b. The price of good Y increases by 10 percent.

c. Advertising decreases by 2 percent.

d. Income falls by 3 percent. Suppose the own priceelasticity of demand for good X is -2, its income elasticity is 3,its advertising elasticity is 4, and the cross- price elasticity ofdemand between it and good Y is -6. Determine how much theconsumption of this good will change if:

a. The price of good X increases by 5 percent.

b. The price of good Y increases by 10 percent.

c. Advertising decreases by 2 percent.

d. Income falls by 3 percent.

Explanation / Answer

as given price elasticity is 2 %change in consumption= -2 * % change in prices =- 2* 5 = -10 b) similarly, %change in consumption of x= cross price elasticity*% change in prices of Y = 6*10 60 c) similarly %change in consumption of x= adv. elasticity * % change inadvetising =4* (-2) = -8 d) similarly, %change in consumption of x= income elasticity* % change inincome 3* -3 = -9

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