Suppose the own price elasticity of demand for good X is -2, its income elastici

Question

Suppose the own price elasticity of demand for good X is -2, its income elasticity is -1, its advertising elasticity is 2, and the cross-price elasticity of demand between it and good Y is -3. 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 4 percent.


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


c. Advertising decreases by 3 percent.


d. Income increases by 5 percent.

Explanation / Answer

a)the consumption of good would increase by 8%

b)the consumption of good would decrease by 24%

c)the consumption of good would decrease by 6%

d)the consumption of good would decrease by 5%

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