How to find price elasticity of demand and income elasticity of demand?
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Demand function for good X is Qx= 550-0.1I +50Py-70Px a) find an expression for price elasticity of demand. b) find an expression for cross price elasticity of demand, are good X and Y substitute or compliments? c) Find an expression for income elasticity, is good X normal or inferior? d) Assume that price of good X increases, show income and substitution effect on a graph.
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Answer:
a.dQx/dPx=-70 Elasticity=dQx/dPx x Px/Qx= -70 x Px/Qx b. dQx/dPy=+50 Cross elasticity=dQx/dPy x Py/Qx=+50 x Py/Qx c. dQx/dI=-0.1 Income elasticity=dQx/dI x I/Qx=-0.1 x I/Qx d. I cannot do it on Yahoo.sorry
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