Question

In: Economics

Suppose the annual demand function for the Honda Accord is QD = 430 – .01PA +...

Suppose the annual demand function for the Honda Accord is QD = 430 – .01P_A + .01P_C -10P_G where P_A and P_C are the prices of Accords and Camrys and P_G is the price of gas. Assume that this year the price of an Accord and the price of a Camry are both $20,000 and the price of gas is $3 per gallon. You are to use the point formula for calculating the following elasticities. Suppose that the income elasticity of demand for Accords is 1.9.

a. Given the prices of Accords, Camrys and gas, what is the quantity demanded of accords?

b. Calculate the price elasticity of demand for Accords. Interpret the elasticity coefficient.

c. Calculate the cross price elasticity of demand of Accords with respect to a change in the price of Camrys. Interpret the elasticity coefficient.

d. Calculate the cross price elasticity of demand for Accords with respect to a change in the price of gasoline. Interpret the elasticity coefficient.

Use the above elasticities to answer the following questions:

e. Are Honda Accords a normal or inferior good? Explain

f) Are Honda Accords and Camrys substitutes or complements? Explain.

g) Is the demand for Accords elastic or inelastic with respect to price changes? Explain.

h) Are Accords a necessity or luxury? Explain.

i) Are Accords and gas complements or substitutes? Explain.

try to do all pls and thank tyou

Expert Solution

Rahul Sunny answered 1 year ago

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