Calculate the price elasticity of demand

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Reference no: EM133487185

Question: The general linear demand for good X is estimated to be

Q = 250,000 - 500P - 1.50M - 240PR

where P is the price of good X, M is average income of consumers who buy good X, and P. is the price of related good R. The values of P, M, and P, are expected to be $200, $60,000, and $100, respectively. Use these values at this point on demand to make the following computations.

a. Compute the quantity of good X demanded for the given values of P, M, and PR.

b. Calculate the price elasticity of demand E. At this point on the demand for X, is demand elastic, inelastic, or unitary elastic? How would increasing the price of X affect total revenue? Explain.

c. Calculate the income elasticity of demand E . Is good X normal or inferior? Explain how a 4 percent increase in income would affect demand for X, all other factors affecting the demand for X remaining the same.

d. Calculate the cross- price elasticity Ex.Are the goods X and R substitutes or complements) Explain haven 5 percent decrease in the price of related anod R would

Reference no: EM133487185

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