Answer to Question #51163 in Microeconomics for Paul Muchira

Question

Given the following estimated demand equation Qdy= 3,000-py-5.6pw+0.4px+0.000003pz+0.004M

Where Qy is the quantity demanded of good Y, Py is the price of good Y, I is the income of the consumer, Px,Pw and Pz are the prices of good X, W and Z respectively. Py = 100, Pw = 300, Pz = 400, Px =100 and M = 40,000. Compute income elasticity of demand, own-price elasticity of demand and the three cross-price elasticity of demand.

Answer 1

Qdy= 3,000 - Py - 5.6Pw + 0.4Px + 0.000003Pz + 0.004M
Where Qy is the quantity demanded of good Y, Py is the price of good Y, I
is the income of the consumer, Px, Pw and Pz are the prices of good X, W
and Z respectively.
Py = 100, Pw = 300, Pz = 400, Px =100 and M = 40,000.
To compute income elasticity of demand we need to know the income I, which is not provided.
Own-price elasticity of demand is Q'(Py) = -1, so the demand for good Y is unit-elastic.