Question

The demand function for Product X is given by: Qd_x = 10 + 0.06I - 2P_x - 0.5P_y + 0.7P_z  where P_x  Price of good X $9.00 

P_y Price of related good Y  $4.00

P_z Price of related good Z $10.00 

I Income  $250.00 

a. (i) Calculate the own Price elasticity of demand (PED) for Good X.                           

                           

Answer 1

Elasticity of demand depicts how much consumer responds with the change in the price level. 

own ped , $Ed_x=\frac{Qd_x}{dP_x}\times\frac{P_x}{Qd_x}$

$=-2\times \frac{9}{10+0.06(250)-2(9)-0.5(4)+0.7(10)}\\=-1.5$

Therefore, |Edx1.5>1, elastic