2. ElasticityConsider the following demand equation for good a. Good a demands is a function ofincome (Y) and prices of good b and c.Q?(p, Y, Po, Pe) = 12 – 3pa + 5Y – 3p, + 4p..Pa = 2Y=500P = 3P = 5a. Calculate elasticity of demand. Does it respect law of demand? is it elastic or inelastic?Why?b. Calculate elasticity of income. Is it inferior or nomal good? Why?c. Calculate cross-price elasticities with good b. Is good b a complement or substitute?Why?d. Calculate cross-price elasticities with good c. Is good c a complement or substitute?Why?

Note: Since we only answer up to 3 sub-parts, we’ll answer the first 3. Please resubmit the question…

Answered: 2. Elasticity Consider the following…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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a. Define income elasticity of demand and cross-price elasticity of demand. b. If a firm determines that the income elasticity of demand for its good is negative (EY < 0), what can be said about this good? c. On the island of Econopia, the cross-price elasticity of demand between holilacs and bajwins is negative (EXY <0). What is the relationship between these goods?
TRUE OR FALSE * If change in quantities demanded and supplied is greater than the change in price, then they type of elasticity of D and s is elastic. * Good has unitary type of elasticity id change in quantities demanded and supplied are equal. *Luxury items have elastic demand and supply.
2
K Use the price-demand equation to find E(p), the elasticity of demand. x= f(p)=90-0.8eP E(p)=
1. As a transit planner for the city of Miami, you must predict how many people ride the Miami Metrorail and how much money is generated from train fares. According to a recent study, the short-run elasticity of demand for Metrorail is 0.62 and the long- run elasticity is 1.59. The current ridership is 50,000 people per day. Suppose the city commission decides to increase fares by 10%. Predict the changes in train ridership over a one-month period and a five-year period. ANS: b. Over the one-month period, will total revenue increase or decrease? What will happen in the five-year period? ANS
Your firm receives revenue of $40MM per year from Product A and $90MM per year from Product B. The own- price elasticity of demand for Product A is -1.5. The cross-price elasticity of demand between Product A and Product B is -1.8. Suppose you increase the price of Product A by two percent: a. How much will Product A’s revenue change? b. How much will Product B’s revenue change?
1. Suppose you are given the following information about the demand for vinyl records: P = 60 – 1.5QD a) Suppose the price increases from $15 to $30, what is the arc elasticity of demand? b) Suppose the price decreases from $30 to $ 15, what is the arc elasticity of demand? c) How does you answer from part (a) and (b) compare with the point elasticity of demand when price is $15? What about when price is $30?
Elasticity in pork prices The demand for processed pork in Canadais described by the function D(p) = 286 - 20p. a. Compute and graph the price elasticity of the demand.b. When - ∞ < E < -1, the demand is said to be elastic. When -1 < E <0, the demand is said to be inelastic. Interpret these terms.c. For what prices is the demand for pork elastic? Inelastic?
what is the graphical representation for the problem of American onlines is concerned over low sales and announces special cuts in its fares this summer. The New York to New Angeles fare for example is reduced from $500 to $ 420. Does American Airlines think demand is elastic, unitary elastic or inelastic.?
6)An increase in supply, ceteris paribus, lowers a good's price. If the total revenue of sellers now falls, we know * a)that the good's price elasticity of demand was greater than 1. b)that the good's price elasticity of demand was smaller than 1. c)that the good's demand curve was vertical. d)that the good's price elasticity of demand was equal to 1 e)that the good's demand curve was a rectangular hyperbola.

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