The demand for good X is estimated to be Q_x^d = 10,000 − 4P_X + 5P_Y + 2M + A_X, where P_X is the price of X,P_Y is the price of good Y,M is income,and A_X is the amount of advertising on X.Suppose the present price of good X is $50,P_Y = $100,M = $25,000,and A_X = 1,000 units.What is the own price elasticity of demand for good X? A) −0.003 B) −0.03 C) −0.3 D) −3

Question

Quizplus · Accepted Answer

The own price elasticity of demand is calculated as the percentage change in quantity demanded divided by the percentage change in own price. In this case, the demand function is Q_x^d = 10,000 − 4P_X + 5P_Y + 2M + A_X. If the price of good X increases by 1%, the quantity demanded will decrease by 4%. Therefore, the own price elasticity of demand is -4%.

The Demand for Good X Is Estimated to Be Qxd

The Demand for Good X Is Estimated to Be Q_x^d