Suppose the own price elasticity of demand for good X is -3, its income elasticity is 1, its advertising elasticity is 2, and the cross-price elasticity of demand between it and good Y is -4. Determine how much the consumption of this good will change if:

Instructions: Enter your answers as percentages. Include a minus (-) sign for all negative answers.

a. The price of good X decreases by 5 percent.

percent

b. The price of good Y increases by 8 percent.

percent

c. Advertising decreases by 4 percent.

percent

d. Income increases by 4 percent.

percent

Solution Preview

a. Price elasticity of demand = % change in Q / % change in P = -3
if price decreases by 1%, quantity will increase by 3%
therefore, if price decreases by 5%, quantity will increase by ...

Solution Summary

Price elasticity of demand is the responsiveness of quantity demanded to a change in price. Solution answers multiple questions on this topic with basic formulae and calculations shown.

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