Answer to Question #51472 in Microeconomics for William Waso WWasonga Omole

Question

Given the following estimated demand equation,

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.