Answer to Question #224718 in Macroeconomics for Nemi

Question

QB=1691-400PB+6pA-6y
PB=0.1 pA=0.3 y (INCOME)=10
1.PRICE ELASTICITY OF DEMAND
2.INCONE ELASTICITY OF DEMAND

Answer 1

 $QB = 1691 - 400×0.1 + 6×0.3 - 6×10 = 1646.8$ units.

A) Price elasticity of demand for the good is: $Ed =\frac{ -400×0.1}{1646.8} = -0.024,$ so the demand is inelastic.

B) Income elasticity of demand for good B is:

$Ei =\frac{ -6×10}{1646.2} = -0.036,$ so the good is inferior.