The extended demand function of good Y is: Q d Y = 1400-20P X - 10P y + 0.1M whe

Question

The extended demand function of good Y is:

QdY = 1400-20PX - 10Py+ 0.1M

where: QdY= quantity demanded of good Y

PY = Price of good Y

M = Average consumer income

Px = Price of related good X (related in consumption to good Y)

a)

If M=10,000, Py=50, and Px=50then Qdx=____

If M=20,000, Py=50, and Px=60then Qdx=_____

c) Use these two prices and quantities demanded to calculate the value of the price elasticity of demand between these two points on the demand curve for good Y (use the arc elasticity formula). Show your work and interpret your answer.What will happen to revenues for the suppliers of good Y as the price of good Y decreases from Px=50 to Px=60? WHY?

Explanation / Answer

a) QdY = 1400-20PX - 10Py+ 0.1M

         = 1400 - 20(50) - 10(50) + 0.1(10000) = 900

b) QdY = 1400-20PX - 10Py+ 0.1M

         = 1400 - 20(60) - 10(50) + 0.1(20000) = 1700

c) Question C is wrong (price of good Y decreases from Px=50 to Px=60). Here, it is written good Y price decreases, it is written Px . Again it increases from 50 to 60 not decreases. This question is very confusing. plz provide clear question to answer.

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