Question

4. Given the demand function Q=98.6-2.3P+3.1P,-2.1Y where Q, is the quantity demanded, Px is the price of the good itself in dollars, P is the price of a related good in dollars, and Y is average income (measured in thousands). If P $23, Ps $29, Y = $36, compute the value for Q C 1 point Using the information in part a, compute the cross-price elasticity (Eo) and determine if Py is describing a substitute or complement (round to 2 decimal). 2 points 1S Using the information in part a, compute the income elasticity (Eo) and determine if this good (X) is a normal or inferior good 2 points

Answer 1

u Px –98.6 -2.3 px +3.1 Py - 2.17 of Px=23 Py = aq Y=36 2x = 98.6 -2.3 (23) +3.1 (29) -2.1 (36) =98.6 - 52.9+89.9 - 75.6 = 60 uits. cross Bice elasticity of demand = db x Py dax = 0 -0+31 (0) - 2.Oy = 3.1 Ecross = 3.1 x 29 60 = 1.49 since cross price Elasticity of are positive. Hence both goods substitute goods and y good X are dx = 0 - +- 21(1)

LLLLLLLLLLLLLLLLL dox x = -2.1 Esn one = dox a la Incone = R:1 * 36 =-1.26 Income elasticity an Inferior since x is good is negative good..