Determining Price Elasticity Of Demand Assignment Paper

Suppose the own price elasticity of demand for good $X$ is $−5$, its income elasticity is $−1$, its advertising elasticity is 4 , and the cross. price elasticity of demand between it and good $Y$ is 3 . Determine how much the consumption of this good will change if: Instructions: Enter your responses as percentages. If you are entering a negative number, be sure to use a (-) sign. a. The price of good $X$ decreases by 6 percent. percent b. The price of good $Y$ increases by 7 percent. percent c. Advertising decreases by 2 percent. percent d. Income increases by 3 percent. percent Determining Price Elasticity Of Demand Assignment Paper

**Step 1/5**

Given:-

Price elasticity of demand for good X = -5

Income elasticity= -1

Advertising elasticity = 4

Cross price elasticity of demand between X and Y = 3

It’s given in the question

**Step 2/5**

A) The Price of good X decreases by 6 percent

Therefore, if the price elasticity of demand is -5 and price decrease is 6%, the consumption of good X will change by

Price Elasticity of demand=(% change in quantity demanded)/( % Change in price)

-5 = (%Change in quantity demanded)/(-6%)

%change in quantity demanded= (-5)*(-6%) =30%

The quantity of demanded of X increases by 30%

Price Elasticity of demand=(% change in quantity demanded)/( % Change in price)

**Step 3/5**

B)The cross-price elasticity of demand is calculated as

= %Change in quantity demanded X/ % Change in price of Y

Therefore, if the cross-price elasticity of demand between X and Y is 3, and the price of Y increases by 7%, the demand for X will change by

3= % Change in quantity demanded X/7%

%Change in quantity demanded X = 21%

Consumption of Good X increases by 21%

B)The cross-price elasticity of demand is calculated as = %Change in quantity demanded X/ % Change in price of Y

**Step 4/5**

C) advertising decreases by 2 percent

Therefore, if advertising is decreased by 2%, and the advertising elasticity of demand is 4, the demand for X will change by Determining Price Elasticity Of Demand Assignment Paper

4 = % Change in Demand X/ (-2%)

% change in Demand X = -8%

The consumption of Good X is decreases by 8%

The advertising elasticity of demand is calculated as

=%change in quantity demanded X / % change in advertising expenditure

**Step 5/5**

D) income increases by 3 percent

Therefore, if the income elasticity of demand for good X is -1, and income is increased by 3%, the demand for X will change by Determining Price Elasticity Of Demand Assignment Paper

-1 = %Change in demand /3%

%Change in demand = -3%

The consumption of good X will decrease by 3%

The income elasticity of demand is calculated as

=%Change in demanded/ %Change in income

Final answer

A)The quantity of demanded of X increases by 30%

B)The quantity of demanded of X increases by 21%

C)The quantity of demanded of X decreases by 8%

D)The quantity of demanded of X decreases by 3%

Determining Price Elasticity Of Demand Assignment Paper