Question

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 X increased by 5 percent, (b) the price of good Y increase by 10 percent, (c) Advertising decreases by 2 present, (d) income falls by 3 percent.

Answer 1

I) The quantity demanded decreases by $2×5=10\%$

ii)The quantity demanded decreases by $6×10=60\%$

iii) The quantity demanded decreases by $2×4=8\%$

iv)The quantity demanded decreases by $3×3=9\%$