Answer to Question #165909 in Microeconomics for Prathiksha

Question

Suppose the demand for a product is given by Q_c=100 - 2P_t+P_c where Q_c is the quantity demand for coffee,P_c is the price of coffee,P_t is the price of the substitute good tea.The price of the substitute good is ₹400/kg.Suppos P_c=₹650/kg,what is the price elasticity of demand?

Answer 1

Qc= 100-2Pt+Pc

Therefore,$\frac{dQ_c}{dP_c} = 1$

Qo= 100-2(400)+650= -50

$P_t= 650$

$PED=-\frac{dQ}{dP} \times \frac{P_t}{Q_o}\\ \implies -1 \times \frac{650}{-50}\\ \implies 13.\\ \text{The demand is elastic.}$