Predicting Changes in Demand
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Question: Suppose that the price elasticity of demand for good X is -2, its income elasticity is 3, its advertising elasticity is 4, and the cross price elasticity of demand between it and good Y is -6. Determine how much consumption changes if:
a) The price of good Y increases by 10%
b) Advertising decreases by 2%
c) Income falls by 3%
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Solution Summary
This solution describes the steps required for determining the changes in demand for the corresponding changes in the price of a good, advertising expenditure and consumer income based upon given elasticity values. All calculations are provided.
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Solution:
a) The price of good Y increases by 10%
Cross Price elasticity of demand = -6
% change in price of good Y = 10%
% change in demand(consumption) of good X = cross price elasticity of demand*% change in price of good Y.
= ...
Education
- BEng (Hons) , Birla Institute of Technology and Science, India
- MSc (Hons) , Birla Institute of Technology and Science, India
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