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Determining Price Elasticity Of Demand Assignment Paper
Suppose the own price elasticity of demand for good
X is
−5, its income elasticity is
−1, its advertising elasticity is 4 , and the cross. price elasticity of demand between it and good
Y is 3 . Determine how much the consumption of this good will change if: Instructions: Enter your responses as percentages. If you are entering a negative number, be sure to use a (-) sign. a. The price of good
X decreases by 6 percent. percent b. The price of good
Y increases by 7 percent. percent c. Advertising decreases by 2 percent. percent d. Income increases by 3 percent. percent Determining Price Elasticity Of Demand Assignment Paper
Step 1/5
Given:-
Price elasticity of demand for good X = -5
Income elasticity= -1
Advertising elasticity = 4
Cross price elasticity of demand between X and Y = 3
It's given in the question
Step 2/5
A) The Price of good X decreases by 6 percent
Therefore, if the price elasticity of demand is -5 and price decrease is 6%, the consumption of good X will change by
Price Elasticity of demand=(% change in quantity demanded)/( % Change in price)
-5 = (%Change in quantity demanded)/(-6%)
%change in quantity demanded= (-5)*(-6%) =30%
The quantity of demanded of X increases by 30%
Price Elasticity of demand=(% change in quantity demanded)/( % Change in price)
Step 3/5
B)The cross-price elasticity of demand is calculated as
= %Change in quantity demanded X/ % Change in price of Y
Therefore, if the cross-price elasticity of demand between X and Y is 3, and the price of Y increases by 7%, the demand for X will change by
3= % Change in quantity demanded X/7%
%Change in quantity demanded X = 21%
Consumption of Good X increases by 21%
B)The cross-price elasticity of demand is calculated as = %Change in quantity demanded X/ % Change in price of Y
Step 4/5
C) advertising decreases by 2 percent
Therefore, if advertising is decreased by 2%, and the advertising elasticity of demand is 4, the demand for X will change by Determining Price Elasticity Of Demand Assignment Paper
4 = % Change in Demand X/ (-2%)
% change in Demand X = -8%
The consumption of Good X is decreases by 8%
The advertising elasticity of demand is calculated as
=%change in quantity demanded X / % change in advertising expenditure
Step 5/5
D) income increases by 3 percent
Therefore, if the income elasticity of demand for good X is -1, and income is increased by 3%, the demand for X will change by Determining Price Elasticity Of Demand Assignment Paper
-1 = %Change in demand /3%
%Change in demand = -3%
The consumption of good X will decrease by 3%
The income elasticity of demand is calculated as
=%Change in demanded/ %Change in income
Final answer
A)The quantity of demanded of X increases by 30%
B)The quantity of demanded of X increases by 21%
C)The quantity of demanded of X decreases by 8%
D)The quantity of demanded of X decreases by 3%
Determining Price Elasticity Of Demand Assignment Paper
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