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pickupchik [31]
3 years ago
13

Suppose the demand curve for a product is given by Q = 11 - 2P + 3Ps Where P is the price of the product and Ps is the price of

a substitue good. The price of the substitute good is $2.80. Suppose P = 1.20. what is the price elasticity of demand? What is the cross price elasticity of demand?
Business
1 answer:
Alex17521 [72]3 years ago
4 0

Answer: (a) -0.1412

(b) 0.4941

Explanation:

Q = 11 - 2P + 3Ps

Where,

P - price of the product

Ps - price of a substitute good

Ps = $2.80

P = $1.20

\frac{dQ}{dP} = -2

\frac{dQ}{dPs} = 3

Price\ elasticity\ of\ demand= \frac{P}{Q}\times\frac{dQ}{dP}

Price\ elasticity\ of\ demand= \frac{1.20}{11-2P+3Ps}\times(-2)

Price\ elasticity\ of\ demand= \frac{1.20}{11-2\times1.2+3\times2.8}\times(-2)

                                                     = \frac{-2.4}{17}

                                                     = -0.1412

Cross\ Price\ elasticity\ of\ demand= \frac{Ps}{Q}\times\frac{dQ}{dPs}

                                                                 = \frac{2.8}{17}\times3

                                                                 = 0.4941

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