Consider the following demand function Qd=1000-4P2+6P*+5Y which describes how the demand Qd for a good depends on its price, P, the price P*of another good and income Y. Calculate the own-price elasticity, the cross price elasticity and income elasticity when P=10, P*=20 and Y=1000. Is demand elastic or inelastic? Are the goods complements or substitutes? Is demand normal?

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Elasticity of Demand and Supply

The elasticity of demand and supply are two important concepts of microeconomics. The elasticity of demand measures the responsiveness of consumers’ demands to the price change, changes in income of consumers, and changes in the price of the related goods. Similarly, the elasticity of supply refers to the proportionate change in the quantity supplied due to the proportionate change in the price. In other words, it can be said that elasticity of supply measures how the quantity of supply changes when the price changes of that particular product.