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# Answer to Question #74272 in Microeconomics for zulfiqar

Question #74272
Given the following demand equation for economics books Qx = 5000 - 500Px + 0.011 + 250Pz (a) Assuming I = \$ 20,000 and Pz = \$20 What is the price elasticity of x at Px = \$16 ? (b) Assuming Px = \$20 and Pz = \$20 what is the income elasticity at I = \$20,000 ? (c) Assuming Px = \$22 and I = \$20,000 Calculate the cross elasticity at Pz = \$20 ?
1
2018-03-12T06:41:07-0400
Qx = 5000 - 500Px + 0.01I + 250Pz
(a) Assuming I = \$ 20,000 and Pz = \$20:
Qx = 10200 - 500Px.
If Px = \$16, then Qx = 2200 units.
The price elasticity of x at Px = \$16 is:
Ed = -500*16/2200 = -3.64, so demand is elastic.
(b) Assuming Px = \$20 and Pz = \$20 the income elasticity at I = \$20,000 is:
Ei = 0.01*20,000/2200 = 0.09, so economic book is normal good.
(c) Assuming Px = \$22 and I = \$20,000:
Qd = 5000 - 500*22 + 200 + 250*20 = -800.
The cross elasticity at Pz = \$20 is:
CrossEd = 250*20/(-800) = -6.25, so the goods are complements.

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