a. The demand for good x is given by x∗ = 60−4Px +2M +Py, where Px...

a. The demand for good x is given by x∗ = 60−4Px +2M +Py, where Px is the price of good x, Py is the price of good y, and M is income. Find the own-price elasticity of demand for good x when Px =20,Py =20, and M =100. Is x an ordinary or giffen good? Explain.

b. The demand for good x is given by x∗ = 60−4Px +2M +Py, where Px is the price of good x, Py is the price of good y, and M is income. Find the cross-price elasticity of demand for good x when Px = 20, Py = 20, and M = 100. Are x and y complements or substitutes? Explain.

Expert Solution

Rahul Sunny answered 2 years ago

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