Answer to Question #306073 in Microeconomics for Oss

Question

The price elasticity of demand is -0.9.

The income elasticity of demand is 0.5.

The cross-price elasticity of demand between your good and a related good

is 2.0.

What can you determine about consumer demand for your product from this

information?

Answer 1

The price elasticity of demand may be used to predict how quantity demand will change in response to a price change. It can indicate how adaptable consumers are when it comes to making purchases, depending on how they react to pricing changes. Because the value is not a whole number, the price elasticity of demand for this commodity is –0.9, which means that the change in price, the denominator, is higher than the change in demand, the numerator. Consumers are willing to pay any amount for this product. Because the price elasticity of demand is inelastic, consumer desire for this goodwill varies less than the price.

The income elasticity of demand measures how much a change in income affects the amount desired to assess if a product is a luxury, a necessity, a standard, or a substandard. This good's demand elasticity of income is 0.5. Because the value is not a whole integer, the change in demand, the numerator, is smaller than the change in income, the denominator. Because this commodity is needed, consumer demand for it will increase as income rises. Furthermore, because this commodity is a need, customer demand for it will fall if income falls.

The cross-price elasticity of demand describes how a change in the amount desired of one commodity is influenced by a price change in another good. This decides whether the commodities are complements or replacements. The demand for this good has a cross-price elasticity of 2.0, indicating that the two commodities are substitutes. Consumers prefer to buy one thing or the other, not both, so the value is positive. If the price of the other item rises, consumer demand for this good will increase. If the price of the other good decreases, consumer demand for this good will decline.