Answer to Question #169297 in Microeconomics for Nelson

Question

Question 1

Given a market demand function of a commodity where

Quantity demand for commodity X

, Price of commodity X

Price of Commodity Y

Price of commodity Z

M, Income of consumer

If is ₡20, is ₡10, is ₡5 and M is ₡120.

a.      What type of good is good X, explain?

b.     How do commodity Y and Z relate to X?

c.      Calculate and interpret the following.

i.                   Own price elasticity of demand.

ii.                 Income elasticity of demand.

iii.                Cross price elasticity of demand.

d.     Derive and Sketch the demand Curve.

Answer 1

(a) Good X Is a normal good.

(b) Good Y and Z are substitutes of good X.

(C)Price elasticity of demand =change in quantity supplied /change in price.

$=100/20=5$

Income elasticity of demand=change in quantity change in income.

$=100/120=-0.8$

Cross price elasticity of demand=change in quantity of good A/change in price of good B

$=100/(10+5)=6.7$