Answer to Question #102083 in Microeconomics for Promith

Question

Q =250,000 -500P - 1.50M - 240PR
where P is the price of good X, M is average income of consumers who buy good X,
and PR is the price of related good R. The values of P, M, and PR are expected to be $200,
$60,000, and $100, respectively. Use these values
a. Compute the quantity of good X demanded for the given values of P, M, and PR.
b. Calculate the price elasticity of demand E. At this point on the demand for X, is
demand elastic, inelastic, or unitary elastic? How would increasing the price of X
affect total revenue? Explain.
c. Calculate the income elasticity of demand EM. Is good X normal or inferior? Explain
how a 4 percent increase in income would affect demand for X, all other factors af-
fecting the demand for X remaining the same.
d. Calculate the cross-price elasticity EXR. Are the goods X and R substitutes or comple-
ments? Explain how a 5 % decrease in the price of related good R would affect
demand for X, all other factors affecting the demand for X remaining the same.

Answer 1

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