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Own price elasticity of demand

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The demand for company X's product is given by Qx=12-3Px+4Py . Suppose good X sells for $3.00 per unit and good Y sells for $1.50 per unit.

a.Calculate the cross-price elasticity of demand between goods X and Y at the given prices.
b.Are goods X and Y substitutes or complements?
c.What is the own price elasticity of demand at these prices?
d.How would your answers to parts a and c change if the price of X dropped to $2.50 per unit?

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Own price elasticity of demand is solved.

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a.Calculate the cross-price elasticity of demand between goods X and Y at the given prices.
Qx=12-3Px+4Py
Put Px=3 and Py=1.50
Let us calculate Qx at these values.
Qx=12-3Px+4Py
=12-3*3+4*1.50
=9
Qx=12-3Px+4Py
dQx/dPy=4

Cross ...

Solution provided by:
Lokesh Jain, MSc
Education
  • BEng (Hons) , Birla Institute of Technology and Science, India
  • MSc (Hons) , Birla Institute of Technology and Science, India
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