Question

In: Economics

The demand for company X's product is given by Qx = 12 – 3Px + 4Py....

The demand for company X's product is given by Qx = 12 – 3Px + 4Py. Suppose good X sells for $3.00 per unit and good Y sells for $1.50 per unit.
a. Calculate the cross-price elasticity of demand between goods X and Y at the given prices.
b. Are goods X and Y substitutes or complements? Explain your answer.
c. What is the own price elasticity of demand at these prices?

Solutions

Expert Solution

b) The goods X and Y have a positive cross price elasticity of demand = 0.66 or approximately 0.67 which shows that if there is an increase in the prices of good X the demand for good Y increases whereas when there is an increase in the prices of good Y, the demand for good X increases. This clearly shows that the goods X and Y are substitute goods.

Rahul Sunny answered 1 year ago
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