# Determining and interpreting elasticities of demand

In Qx = 3-0.5 in Px - 2.5 In Py + lnM + 2lnA

ln being natural log

Where

Px = $10

Py = $4

M = $20,000

A - $250

a) Determine the own price elasticity of demand and state whether demand is elastic, inelastic or unitary elastic

b) Determine the cross price elasticity of demand between good X and good Y and state whether these two goods are substitutes or compliments

c) Determine the income elasticity of demand state whether good X is normal or inferior

d) Determine the own advertising elasticity of demand

https://brainmass.com/economics/demand-supply/225810

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Solution:

a) Determine the own price elasticity of demand and state whether demand is elastic, inelastic or unitary elastic

In Qx = 3-0.5 in Px - 2.5 In Py + lnM + 2lnA

Differentiating with respect to Px both sides we get

(1/Qx) *d(Qx)/dPx=-0.5*(1/Px)

dQx/dPx=-0.5*Qx/Px

We Know, Own price elasticity of demand=(dQx/dPx)*(Px/Qx)

=-0.5*(Qx/Px)*(Px/Qx)=-0.5

Absolute value of own ...

#### Solution Summary

Solution describes the steps for calculating own price elasticity, cross price elasticity, income elasticity and advertising elasticity of demand for a given natural logarithm function. It also predicts the nature of related good and nature of given demand based upon elasticities.