Suppose the own price elasticity of demand for good X is -5, its income elastici

Question

Suppose the own price elasticity of demand for good X is -5, its income elasticity is 2, its advertising elasticity is 4, and the cross-price elasticity of demand between it and good Y is 3. Determine how much the consumption of this good will change if:

Instructions: Enter your answers as percentages. Include a minus (-) sign for all negative answers.

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

percent

b. The price of good Y increases by 9 percent.

percent

c. Advertising decreases by 3 percent.

percent

d. Income increases by 2 percent.
percent

Explanation / Answer

a. elasticity of demand for good X = % change in quantity/ % change in price = -5

% change in quantity = -5*-5 = 25

b. cross-price elasticity of demand between it and good Y = % change in quantity/ % change in price in Y = 3

% change in quantity = 3*9 = 27

c. advertising elasticity = 4

% change in quantity = 4*-3 = -12

d. income elasticity = 2

% change in quantity = 2*2 = 4

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