dQ= -500dpdQHints:The general linear demand for good X is estimated to be-1.5Q 3 250000- 500p — 1.5M — 240р,dMdQ= -240dp-where p is the price of good X, M is the average income of consumerswho buy good X, and p, is the price of related good r, The values of p, M,and p, are expected to be $400, $60,000, and $100, respectively. Usethese values at this point on the demand to make the followingcomputations.a Compute the quantity of good X demanded for the given values of P,M, and p,.b. Calculate the price elasticity of demand ɛg. At this point on thedemand for X, is demand elastic, inelastic, or unitary elastic? How wouldincreasing the price of X affect total reveune? Explain.c. Calculate the income elasticy of demand ɛm. Is good X normal orinferior? Explain how a 4 percent increase in income would affectdemand for X, all other factors affecting the demand for X remaining thesame.d. Calculate the cross-price elasticity Eg. Are the goods X and Rsubstitutes or complements? Explain how a 5 percent decrease in theprice of related good R would affect demand for X, all other factorsaffecting the demand for X remaining the same.

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Answered: Hints: -500 dp dQ The general linear…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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dQ
= -500
dp
dQ
Hints:
The general linear demand for good X is estimated to be
-1.5
Q 3 250000- 500p — 1.5M — 240р,
dM
dQ
= -240
dp-
where p is the price of good X, M is the average income of consumers
who buy good X, and p, is the price of related good r, The values of p, M,
and p, are expected to be $400, $60,000, and $100, respectively. Use
these values at this point on the demand to make the following
computations.
a Compute the quantity of good X demanded for the given values of P,
M, and p,.
b. Calculate the price elasticity of demand ɛg. At this point on the
demand for X, is demand elastic, inelastic, or unitary elastic? How would
increasing the price of X affect total reveune? Explain.
c. Calculate the income elasticy of demand ɛm. Is good X normal or
inferior? Explain how a 4 percent increase in income would affect
demand for X, all other factors affecting the demand for X remaining the
same.
d. Calculate the cross-price elasticity Eg. Are the goods X and R
substitutes or complements? Explain how a 5 percent decrease in the
price of related good R would affect demand for X, all other factors
affecting the demand for X remaining the same.

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d. Calculate the cross-price elasticity Eg. Are the goods X and R substitutes or complements? Explain how a 5 percent decrease in the price of related good R would affect demand for X, all other factors affecting the demand for X remaining the same.

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