Suppose the demand function for a consumer is given by
a. What is the own-price elasticity of demand for x?
b What is the cross-price elasticity of demand for x?
c. What happens to spending on x as the price of x increases?
d. What is the income elasticity of demand for x? What does this tell you about what kind of good x must be?
What will be an ideal response?
a.
b.
c. Since the price elasticity is -2 -- i.e. since demand is relatively price elastic, spending will fall as price increases.
d. Since income does not appear in the demand function, the income elasticity of demand is zero. This implies that the good x is quasilinear.
b.
c. Since the price elasticity is -2 -- i.e. since demand is relatively price elastic, spending will fall as price increases.
d. Since income does not appear in the demand function, the income elasticity of demand is zero. This implies that the good x is quasilinear.
Economics
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Suppose a friend gives you two pieces of gum, and you decide to have one piece now and save the other for tomorrow. You do this because:
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