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AlYamamah University Managerial Economic Elasticity of Demmand Questions
- The demand curve for a product is given by Qdx= 1,200 – 3Px – 0.1Pz
Where Pz = SR300.
- What is the own price elasticity of demand when Px= SR140? Is demand elastic or inelastic at this price? What would happen to the firm’s revenue if it decided to charge a price below SR140?
- What is the own price elasticity of demand when Px= SR240? Is demand elastic or inelastic at this price? What would happen to the firm’s revenue if it decided to charge a price above SR240?
- What is the cross price elasticity of demand between good X and good Z when Px =SR140? Are good X and good Z substitutes or complements?
- Suppose the own price elasticity of demand for good X is -4, its income elasticity is 2, its advertising elasticity is 3, and the cross price elasticity of demand between it and good Y is -6. Determine how much the consumption of this good will change if:
- The price of good X increases by 10%.
- The price of good Y decreases by 5%.
- Advertising increases by 14%.
- Income decreases by 8%.
- Suppose the cross price elasticity of demand between goods X and Y is 4. How much would the price of good Y have to change in order increase the consumption of good X by 20 percent?
- A consumer has $300 to spend on goods X and Y. the market prices of these two goods are Px= $15 and Py = $5.
- What is the market rate of substitution between goods X and Y?
- Illustrate the consumer’s opportunity set in a carefully labeled diagram.
- Shoe how the consumer’s opportunity set changes if income increases by $300. How does the $300 increase in income alter the market rate of substitution between goods X and Y?
- A consumer must divide $600 between the consumption of product X and product Y. The relevant market prices are Px= $10 and Py = $40.
- Write the equation for the consumer’s budget line.
- Show how the consumer’s opportunity set changes when the price of good X increases to $20. How does this change alter the market rate of substitution between good X good Y?
- Consider the following budget line:
- What is the maximum amount of X that can be consumed?
- What is the maximum amount of Y that can be consumed?
- What is rate at which the market trades goods X and Y?
- A consumer must spend all of his income on two goods X and Y. In each of the following scenarios, include whether the equilibrium consumption of goods X and Y will increase or decrease. Assume good X is an normal good and good Y is an inferior good.
- Income doubles.
- Income quadruples and prices double.
- Income and all prices quadruples.
- Income is halved and all prices double.
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