. Economists often say that goods tend to have more elastic demand when they have lots of closeχδ= α + (1 - a)substitutes. Use the CES utility function U(x, y)to show that the own-priceelasticity of demand for good X gets larger (in absolute value) as the elasticity of substitution getslarger.

In the study of economics, the term utility can be defined as the total satisfaction or benefit that…

Economists often say that goods tend to have more elastic demand when they have lots of close x8 substitutes. Use the CES utility function U(x, y) = a + (1-a) 28 to show that the own-price 8 8 elasticity of demand for good X gets larger (in absolute value) as the elasticity of substitution gets larger.

Economists often say that goods tend to have more elastic demand when they have lots of close x8 substitutes. Use the CES utility function U(x, y) = a + (1-a) 28 to show that the own-price 8 8 elasticity of demand for good X gets larger (in absolute value) as the elasticity of substitution gets larger.

Managerial Economics: A Problem Solving Approach

5th Edition

ISBN:9781337106665

Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Publisher:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Chapter6: Simple Pricing

Section: Chapter Questions

Problem 5MC

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Recent research confirms that the demand for cigarettes is not only inelastic, but it also indicates that smokers with incomes in the lower half of all incomes respond to a given price increase by reducing their purchases by amounts that are more than four times as large as the purchase reductions made by smokers in the upper half of all incomes. How can the income and substitution effects of a price change help explain this finding?
Using the following equation for the demand for a good or service, calculate the price elasticity of demand (using the point form), cross-price elasticity with good x and income elasticity. Q=82P+0.10I+Px Q is quantity demanded, P is the product price. P1 is the price of a related good, and I is income. Assume that P= $10, I = 100, and Px = 20.
Income Effects depend on the income elasticity of demand for each good limit you buy. If one of the goods you buy has a negative income elasticity, that is, it is an inferior good, what must be true of the income elasticity of the other good you buy?
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