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25 Jul 2018

A2. Suppose that the price of good X increases from $3 to $4 while the price of good Y increases from $150 to $200. The relative price of X (in terms of Y) (A) (B) (C) (D) (E) cannot be determined from the above data. is completely unrelated to the price of good Y. has fallen. has risen. remained constant.

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Beverley Smith
Beverley SmithLv2
27 Jul 2018
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Related questions

Suppose that the extended (generalized) demand function for good Y is:

QdY= 250,000 - 500 PY -1.5 M + 240 PX

where: QdY = quantity demanded of good Y

PY = Price of good Y

M = Average income of consumers

PX = Price of related good X

a) If M = $ 60,000 and PX = $100, what is the reduced demand function for good Y?

b) Continue using the reduced demand equation from part a,

If M = $60,000, PX = $100, and PY = $200 then QdY = ________

If M = $60,000, PX = $100, and PY = $300 then QdY = ________

Use this information (prices and quantities demanded of good Y) to calculate the price elasticity of demand between these two points on the demand curve of good Y. Show your work.

c) Use your answer to part b. Between these two points on the demand for good Y, is demand elastic, inelastic, or unitary price elastic? Why? What will happen to total revenues if the price increases between these two points on the demand curve?

d) In part b, you found that when:

M = $60,000, PX = $100, and PY = $200 then QdY = ________

Now let's suppose that the price of the related good X decreases from $100 to $50 but income remains constant (at $60,000). Assume that the price of good Y is also constant at $200.

If M = $60,000, PX = $50, and PY = $200 then QdY = ________

Use these prices of good X and the quantities demanded of good Y to calculate the cross-price elasticity of the demand for good Y when the price of good X decreases from $100 to $50.

e) Consider your answer to part d. Based on the value of the cross-price elasticity of demand you just estimated, are goods X and Y substitutes, complements, or unrelated? Why?

f) In part b, you found that when:

M = $60,000, PX = $100, and PY = $200 then QdY = ________

Now let's suppose that consumer income increases from $60,000 to $80,000 but the price of good X remains constant (at $100). Assume that the price of good Y is also constant at $200.

If M = 80,000 , PX = $100 and PY = $200 then QdY = _________

Use these income levels and quantities demanded of good Y to calculate the income elasticity of the demand for good Y when income increases from $60,000 to $80,000.

Show your work

g) Consider your answer to part f. Based on the value of the income elasticity of demand you just estimated, is good Y normal, inferior, or income independent?

23) Good X is measured on the horizontal axis and good Y is measured on the vertical axis. The marginal rate of substitution is A) the relative price of good X in terms of good Y. B) the relative price of good Y in terms of good X. C) the rate at which a consumer will give up good Y to obtain an additional unit of good X while remaining indifferent. D) the rate at which a consumer will give up good X to obtain an additional unit of good Y while remaining indifferent. E) equal to the magnitude of the slope of the budget line.

Which of the following statements about the price elasticity of demand is correct?

a. The price elasticity of demand for a good measures the willingness of buyers of the good to buy less of the good as its price increases.

b. Price elasticity of demand reflects the many economic, psychological, and social forces that shape consumer tastes.

c. Other things equal, if good x has close substitutes and good y does not have close substitutes, then the demand for good x will be more elastic than the demand for good y.

d. All of the above are correct.

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