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The general linear demand for good X is estimated to be

Q=250,000 - 500p - 1.50M - 240Pr

where P is the price of good X, M is average income of consumers who buy good X and Pg is the price of related good R. The valvue of P, M, and Pr are expected to be $200. $60,000, and $100, respectively. Use these values at this point on the demand to make the following computations.

a. Compute the quantity of good X demand for the given values of P, M, and Pr.

b. Calculate the price elasticity of demand E. At this point on the demand for X, is demand elastic, inelastic, or unitary elastic? How would increasing the price of X affect total revenue? Explain.

c. Calculate the price elasticity of demand Em Is good X normal or inferior? Explain how a 4 percent increase in income would affect demand for X, all other factors affecting the demand for X remaining the same.

d. Calculate the cross-price elasticity Exr. Are goods X and R substitutes or complements? Explain how  a 5 percent decrease in the price of related good R would affect demand for X, all other factors affecting the demand for X remaining the same.

Business Management, Management Studies

  • Category:- Business Management
  • Reference No.:- M92179235
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