The demand for Wanderlust Travel Services (X) is estimated to be Qx = 22,000 - 2.5Px + 4Py - 1M + 1.5Ax, where Ax represents the amount of advertising spent on X and the other variables have their usual interpretations. Suppose the price of good X is $450, good Y sells for $40, the company utilizes 3,000 units of advertising, and consumer income is $20,000. a. Calculate the own price elasticity of demand at these values of prices, income, and advertising. b. Is demand elastic, inelastic, or unitary elastic?
The
a. Calculate the own
b. Is demand elastic, inelastic, or unitary elastic?
c. Is good X a normal good? Why/Why not?
d. Are goods X and Y substitutes? Why/Why not?
e. Assuming the prices of good X & Y and consumer incomes remain unchanged, if the advertising spent A is increasing, how will the price elasticity of demand for good X change? Why?
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