a) The demand curve for a product is given by Qxd = 1,000 – 2Px – 0.1Pz where Pz = $100. (i) What is the own-price elasticity of demand when Px = $50? Is demand elastic? Explain. (ii) What is the cross-price elasticity demand between good X and good Z when Px = $60? Are goods X and Z substitutes?
(a) The demand curve for a product is given by Qxd = 1,000 – 2Px – 0.1Pz where Pz = $100.
(i) What is the own-
(ii) What is the cross-price elasticity demand between good X and good Z when Px = $60? Are goods X and Z substitutes?
(b) A consumer must divide $400 between the consumption of Product X and Product Y. The relevant market prices are Px = $8 and Py = $16.
(i) What is the equation for the consumer’s budget line.
(ii) Show how the consumer’s opportunity set changes when the price of good X increases to $10. How does this change alter the market rate of substitution between goods X and Y?
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