Suppose the demand function for good X is given by: Q_dx = 15-0 5P_x - 0.8 P y w

Question

Suppose the demand function for good X is given by: Q_dx = 15-0 5P_x - 0.8 P y where Q_dx is the quantity demanded of good X, P_x is the price of good X, and P_y is the price of good Y, which is related to good X. Using the midpoint method, if the price of good Y is $10 and the price of good X decreases from $5 to $3, what is the price elasticity of demand for good X? Is the demand elastic, unitary elastic, or inelastic? Good X and Good Y are related as Using the midpoint method, if the price of good X is $10 and the price of good increases from $8 to $10, the cross price elasticity of demand is about

Explanation / Answer

Ans b - They are complement goods.

Ans c -

Q(8) - 15 - 0.5 x 10 - 0.8 x 8 = 3.6

Q(10) - 15 - 0.5 x 10 - 0.8 x 10 = 2

Cross Elasticity = -0.2 / 0.8 = -0.4

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