Question #110787

Suppose the own price elasticity of demand for good X is -3, its income elasticity is -2, its advertising elasticity is 3, and the cross-price elasticity of demand between it and good Y is -5. Determine how much the consumption of this good will change if:

a. The price of good X decreases by 7 percent.

b. The price of good Y increases by 8 percent.

c. Advertising decreases by 4 percent.

d. Income increases by 3 percent.

a. The price of good X decreases by 7 percent.

b. The price of good Y increases by 8 percent.

c. Advertising decreases by 4 percent.

d. Income increases by 3 percent.

Expert's answer

a).Â

"-3\u00d77=21"

A negative price Elasticity means that their is an inverse realationship betwen the price change and quantity demanded and therefore,Price decrease by 7% will increase the quanity demanded by 21%.

Price increase by 8% will decrease quantity demanded by 40%.This is because good x and y are complentary goods.They are complentary goods because they have a negative cross elasticity.

c).

"4\u00d73=12"

A positive price elasticity means that

there is positive realationship betwen the quantity demanded and price charged.Advertising decrease by 12%

d)

"-2\u00d73=6"

Increasing income by 3% decrases the quantity demanded by 6% because the income elasticity is negative.

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