Answer to Question #158490 in Microeconomics for nfraser

Question #158490

1.      Study the following table carefully


income Price of X Quantity of X Price of Z Quantity of Z

40000 300 200 200 250

70000 500 90 600 100

         

Calculate the following:

(a)   Income elasticity of demand for good X

(b)  Cross elasticity of demand of good Z when the price of good X changes

(c)c Price elasticity of demand for good Z


1
Expert's answer
2021-01-27T15:02:35-0500

a) Let's calculate income elasticity of demand for good X:


Ey=% change in quantity demanded% change in income,E_y=\dfrac{\%\ change\ in\ quantity\ demanded}{\%\ change\ in\ income},Ey=Q2Q1Q1Y2Y1Y1=90200200700004000040000=0.73E_y=\dfrac{\dfrac{Q_2-Q_1}{Q_1}}{\dfrac{Y_2-Y_1}{Y_1}}=\dfrac{\dfrac{90-200}{200}}{\dfrac{70000-40000}{40000}}=-0.73

b) Let's calculate cross elasticity of demand of good Z when the price of good X changes:


Ezx=ΔQzQzΔPxPx=100250250500300300=0.9E_{zx}=\dfrac{\dfrac{\Delta Q_z}{Q_z}}{\dfrac{\Delta P_x}{P_x}}=\dfrac{\dfrac{100-250}{250}}{\dfrac{500-300}{300}}=-0.9

c) Let's calculate price elasticity of demand for good Z:


Ep=ΔQQ1ΔPP1=100250250600200200=0.3E_p=\dfrac{\dfrac{\Delta Q}{Q_1}}{\dfrac{\Delta P}{P_1}}=\dfrac{\dfrac{100-250}{250}}{\dfrac{600-200}{200}}=-0.3

Need a fast expert's response?

Submit order

and get a quick answer at the best price

for any assignment or question with DETAILED EXPLANATIONS!

Comments

No comments. Be the first!

Leave a comment