Question

Suppose the demand function for a firm’s product is given by:

lnQx = 3 – 0.5lnPx -2.5lnPy +lnM + 2lnA

where Px = GH¢10, Py = GH¢4, M = GH¢20,000 and A = GH¢250.

i. Determine the own price elasticity of demand, and state whether demand is elastic, inelastic or unitary elastic.
ii. Determine the cross-price elasticity of demand between good X and good Y, and state whether these two goods are substitutes of complements.
iii. Determine the income elasticity of demand, and state whether good X is normal or inferior good.
iv. Determine the own price elasticity of demand.