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. a) Suppose P = €1. What is the price elasticity of demand? What is the cross-price elasticity of demand? b) Explain the economic meaning of the calculated value of cross-price elasticity. c) Explain in one sentence how the price increase of the product impacts the firm’s revenue in this case
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. a) Suppose P = €1. What is the price elasticity of demand? What is the cross-price elasticity of demand? b) Explain the economic meaning of the calculated value of cross-price elasticity. c) Explain in one sentence how the price increase of the product impacts the firm’s revenue in this case
Chapter5: Elasticity Of Demand And Supply
Section: Chapter Questions
Problem 1.1P: (Calculating Price Elasticity of Demand) Suppose that 50 units of a good are demanded at a price of...
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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.
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a) Suppose P = €1. What is the price
elasticity of demand ? What is the cross-price elasticity of demand? -
b) Explain the economic meaning of the calculated value of cross-price elasticity.
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c) Explain in one sentence how the price increase of the product impacts the firm’s revenue in this case.
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d) Assuming PS is €2, design the corresponding demand curve in a diagram (do not forget to describe the axes).
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