elasticity, Microeconomics

-1-
ASSIGNMENT #1
The demand function for Product X is given by:
Qdx = 80- 2Px- 0.05P²x -0.2Py + 4Pz + 0.01I+ 2A
Where:
Px
Price of good X
$120.00
Py
Price of related good y
$100.00
Pz
Price of related good z
$40.00
I
Income
$7000.00
A
Advertising
$250.00
a. (i) Calculate the own Price elasticity of demand (PED) for Good X.
(ii) Discuss whether revenue can be increased by increasing the price of Good X?
(iii) Illustrate on a well labelled demand graph for Product X, the Total Revenue earned when Price is equal to $120.00
[8 marks]
b. (i) Determine the Cross-Price elasticity of demand (XED) between Good X and Good Y.
(ii) Using your answer for b. (i), explain the relationship between Good X and Good Y. (Substitute, Complement etc)
(iii) Determine the Cross-Price elasticity of demand (XED) between Good X and Good Z.
(iv) Using your answer for b. (iii), explain the relationship between Good X and Good Z. (Substitute, Complement etc)
(v) Based on the solutions for parts b. (i) to (iv) above, suggest one example of an actual agricultural product that fits the description for each of the following: Product X, Product Y and Product Z.
[13 marks]
c. Consider the following two situations:
? Situation 1: There is a fifteen percent (15%) increase in the price of Good Z (Pz).
? Situation 2: There is a sixty percent (60%) decrease in the price of Good Y (Py).
-2-
Both situations highlighted above, will affect the Total Revenue earned by Producers of Good X. Explain which situation is more beneficial, to the producers of Good X, from a Total Revenue earned perspective.
[5 marks]
d. (i) Calculate the Income elasticity of demand (YED) for Good X.
(ii) Explain whether Good X is a normal good or an inferior good.
[4 marks]
e. Assume that the own Price elasticity of demand (PED) for Good X is -2 and the Income elasticity of Demand (YED) for Good X is 3.
(i) Calculate the percentage change in consumption that will occur, when income declines by twenty percent (20%) .
(ii) Using the demand function presented for Good X above, determine the new quantity of Good X demanded when income declines by twenty percent (20%) , and the Income Elasticity of Demand (YED) for Good X is 3.
[5 marks]
f. Suppose that the Cross-price elasticity of demand (XED) between Good X and Good Z is 4.
(i) How much would the price of Good Z (Pz) have to change in order to increase the consumption of Good X by twenty five percent (25%)?
(ii) Use a well-labelled illustration of the demand curve for Good X to show the effect on the demand for Good X, of the change in the Price of Good Z (PZ) as calculated in f. (i) above.
Posted Date: 11/3/2012 9:51:43 AM | Location : Trinidad and Tobago







Related Discussions:- elasticity, Assignment Help, Ask Question on elasticity, Get Answer, Expert's Help, elasticity Discussions

Write discussion on elasticity
Your posts are moderated
Related Questions
illustrate graphically the influence of an increase in immigrants on the market supply of labour

Analysis of business portfolio by using Boston Consultant Group (BCG) Matrix.

economic problems are faced by all types of economies but they are dealt with differently in different types of economies.discuss

critically evaluate the two main utility theories


Short run production period and long run production period: The short run is a period of production during which some factors of production are fixed and some too are variable

critically analysis firm theory of profit maximization?

what is the theory of second best? prove the theorem with the help of a diagram.

SHORT PERIOD ANALYSIS: Short period in production refers to a time when some inputs remain fixed. A fixed input is one, whose quantity cannot be changed readily, whereas, a va

Q. Describe about Capitalism? Capitalism: An economic system in that privately-owned businesses and companies undertake most economic activity (with the goal of generating priv