Elasticities & Knowing the nature of related good
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The demand function for Good X is defined as Qx = 75 - 2Px - 1.5Py, where Py is the price of Good Y. Calculate the price elasticity of demand using the point formula for Px = 20 and Py = 10. Determine whether demand is elastic, inelastic, or unit elastic with respect to its own price and whether Good Y is a substitute or a complement with respect to Good X.
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Solution Summary
The solution describes the steps in calculating elasticities for a given demand function and checks whether related good is compliment or substitute.
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Solution :
Qx = 75-2Px -1.5Py
Differentiate with respect to Px, we get
d(Qx)/dPx = -2
We will find Qx at Px =20 and Py = 10
Qx = ...
Education
- BEng (Hons) , Birla Institute of Technology and Science, India
- MSc (Hons) , Birla Institute of Technology and Science, India
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