Question

paul’s demand function for good x is given by x(px,ly,m)=2m/5px. his income, m, is £1000, the price of x,px, is £5 and the price of y, pay, is £20.
what will be the change in paul’s demand for good x if the price of good falls to £4?

Answer 1

Demand: $\frac{2m}{5px}$

Income: £1000

Price (Px): £5

Price (Py): £20

Demand = $(2\times1000)/(5\times5) = 80$

If Px = £4

Demand = $(2\times1000)/(5\times4) = 100$

Change = $\frac{(100-80)}{80} = 25\%$