Economy, asked by Anonymous, 4 months ago

Suppose the demand curve for a product is given by Q = 10 − 2P + PS, where P is the price of the product and PS is the price of a substitute good. The price of the substitute good is $2.00.

Suppose P = $1.00. What is the price elasticity of demand? What is the cross-price elasticity of demand?

Suppose the price of the good, P, goes to $2.00. Now, what is the price elasticity of demand? What is the cross-price elasticity of demand?

Answers

Answered by Tulsi4890
0

To calculate the price elasticity of demand at a given price, we need to calculate the percentage change in quantity demanded for a given percentage change in price. We can do this using the following formula:

Price elasticity of demand = (% change in quantity demanded) / (% change in price)

To calculate the cross-price elasticity of demand, we need to calculate the percentage change in quantity demanded for a given percentage change in the price of the substitute good. We can do this using the following formula:

Cross-price elasticity of demand = (% change in quantity demanded) / (% change in price of substitute good)

Using this information, we can calculate the price elasticity of demand and the cross-price elasticity of demand for the given demand curve at the two different prices:

At P = $1.00:

Q = 10 - 2P + PS

= 10 - 2(1) + (2)

= 8

Price elasticity of demand = (% change in quantity demanded) / (% change in price)

= (8 - 10) / (-2 - 1)

= -2 / -3

= 2/3

Cross-price elasticity of demand = (% change in quantity demanded) / (% change in price of substitute good)

= (8 - 10) / (2 - 2)

= -2 / 0

= undefined

At P = $2.00:

Q = 10 - 2P + PS

= 10 - 2(2) + (2)

= 6

Price elasticity of demand = (% change in quantity demanded) / (% change in price)

= (6 - 8) / (-2 - 1)

= -2 / -3

= 2/3

Cross-price elasticity of demand = (% change in quantity demanded) / (% change in price of substitute good)

= (6 - 8) / (2 - 2)

= -2 / 0

= undefined

Therefore, at both prices, the price elasticity of demand is 2/3, and the cross-price elasticity of demand is undefined.

To learn more about price elasticity of demand from the given link.

https://brainly.in/question/14250683

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