PROBLEM (5) Cars (x) is a normal good, and public transportation (y) is a substitute for cars. The demand forcars(x) is given by where Qp = 20 ± px ± py ± pfuture ±Iwhere px is the price of cars, py is the price of public transportation, pfuture is the expected future price of carsand I is the average income level.(a) Decide whether a plus (+) or a minus (-) sign is appropriate for each "+" in the demand equation above.(b) Does the demand become more or less elastic (at a given px) as py increases?(c) Calculate the cross price elasticity of demand (for cars with respect to the price of public transportation py)at the point I = 10, px = 5, py=2, pfuture = 1(d) If the point in (c) is the market equilibrium point where the supply is known to have constant priceelasticity with E = 2 at any point on the curve, derive the supply function.

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Answered: PROBLEM (5) Cars (x) is a normal good,…

ENGR.ECONOMIC ANALYSIS

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ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

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PROBLEM (5) Cars (x) is a normal good, and public transportation (y) is a substitute for cars. The demand for
cars(x) is given by where Qp = 20 ± px ± py ± pfuture ±I
where px is the price of cars, py is the price of public transportation, pfuture is the expected future price of cars
and I is the average income level.
(a) Decide whether a plus (+) or a minus (-) sign is appropriate for each "+" in the demand equation above.
(b) Does the demand become more or less elastic (at a given px) as py increases?
(c) Calculate the cross price elasticity of demand (for cars with respect to the price of public transportation py)
at the point I = 10, px = 5, py=2, pfuture = 1
(d) If the point in (c) is the market equilibrium point where the supply is known to have constant price
elasticity with E = 2 at any point on the curve, derive the supply function.

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(d) If the point in (c) is the market equilibrium point where the supply is known to have constant price elasticity with E = 2 at any point on the curve, derive the supply function.

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