Consider the demand function for good1, Q1 = 681 - P1 + 0.75* P2 - 0.5* P3 + 0.05*Y Where, price of good1 (P1) is 200, price of good2 (P2) is 92, price of good3 (P3) is 399, and income (Y) is 18937; (i) Find the price elasticity of demand (PED). (Give your answer to two decimal places) (ii) Find the income elasticity of demand (YED) (Give your answer to two decimal places). (iii) Find the cross price elasticity of demand (XED) between good1 and good2. (Give your answer to east two decimal places) (iv) Find the cross price elasticity of demand (XED) between good 1 and good 3. (Give your answer to two decimal places) (v) Estimate the percentage change in the demand for good1 resulting from a 10% decrease in the price of good3. (Give your answer to two decimal places, if required and do not use % sign in your answer)

ECON MICRO
5th Edition
ISBN:9781337000536
Author:William A. McEachern
Publisher:William A. McEachern
Chapter5: Elasticity Of Demand And Supply
Section: Chapter Questions
Problem 1.1P: (Calculating Price Elasticity of Demand) Suppose that 50 units of a good are demanded at a price of...
Question

Consider the demand function for good1, Q1 = 681 - P1 + 0.75* P2 - 0.5* P3 + 0.05*Y

Where, price of good1 (P1) is 200, price of good2 (P2) is 92, price of good3 (P3) is 399, and income (Y) is 18937;

(i) Find the price elasticity of demand (PED). (Give your answer to two decimal places)

(ii) Find the income elasticity of demand (YED) (Give your answer to two decimal places).

(iii) Find the cross price elasticity of demand (XED) between good1 and good2. (Give your answer to east two decimal places)

(iv) Find the cross price elasticity of demand (XED) between good 1 and good 3. (Give your answer to two decimal places)

(v) Estimate the percentage change in the demand for good1 resulting from a 10% decrease in the price of good3.

(Give your answer to two decimal places, if required and do not use % sign in your answer)

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