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 where px is the price of cars, Py is the price of public transportation, puture 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 "t" 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, puture = 1 = 20 ± px ± py ± p{uture ±I
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 where px is the price of cars, Py is the price of public transportation, puture 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 "t" 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, puture = 1 = 20 ± px ± py ± p{uture ±I
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text: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
where px is the price of cars, Py is the price of public transportation, p"
and I is the average income level.
(a) Decide whether a plus (+) or a minus (-) sign is appropriate for each "t" in the demand equation above.
(b) Does the demand become more or less elastic (at a given px) as py
± Py ± puture +I
future
is the expected future price of cars
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, px
(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.
future
=
1
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