(a)
The own price elasticity at price P = $15
Answer to Problem 3CACQ
The own price elasticity at price P = $15 is equal to -1.5
Explanation of Solution
Given:
Here, the demand is elastic because the absolute value of elasticity is greater than 1 (E>1).
The price elasticity of demand shows the responsiveness of quantity demanded of good X due to the change in price of good X.
Formula for elasticity when demand function for good X is in log- linear form
(b)
The cross-price elasticity of demand between good X and Y.
Answer to Problem 3CACQ
The cross-price elasticity between good X and good Y is equal to 2.
Explanation of Solution
Given:
With the help of demand function with their respective values cross-price elasticity is:
Here, good X and good Y are substitutes (E= +ve)
The cross-price elasticity shows the responsiveness of quantity demanded of good X due to the change in price of good Y.
Formula for cross-price elasticity of demand when demand function for good X is in log-linear form.
(c)
The income elasticity when income M = $40,000.
Answer to Problem 3CACQ
The income elasticity of demand is equal to -0.5
Explanation of Solution
With the help of the demand function and the respective values of variables, the income elasticity of the consumer can be calculated. The expression for income elasticity derivation is as follows:
Here, good X is inferior good (E<0).
The income elasticity of a product shows the responsiveness of quantity demanded of the product when the income of consumer changes.
Formula for cross-price elasticity of demand when demand function for good X is in log-linear form:
(d)
The own advertising elasticity of demand
Answer to Problem 3CACQ
The advertising elasticity of demand is equal to 1.
Explanation of Solution
With the help of demand function and the respective values of variables, the advertising elasticity of the demand can be calculated. The expression for income elasticity derivation is as follows:
The advertising elasticity of demand shows the responsiveness of quantity demanded of a product due to the change in advertising spent on the product.
Formula for cross-price elasticity of demand when demand function for good X is in log-linear form:
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Chapter 3 Solutions
Managerial Economics & Business Strategy (Mcgraw-hill Series Economics)
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