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Price, Income and Cross Price Elasticities

The market demand for cotton socks is given by:

Q = Annual demand in number of pairs
I = Average income in dollars per year
P = Price of one pair of cotton socks
P' = Price of one pair of wool socks

Given that I = $20,000, P=$10, and P'=$5, determine:

A. The price elasticity, e(Q,P)
B. The income elasticity, e(Q,I)
C. The cross price elasticity, e(Q,P')

Solution Summary

This solution looks at economic elasticities (price, income, cross price).