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1) Suppose demand for smart tablets is estimated to be Q = lOOOSp +10pa2pb+0.l Y where p is the price of tablets, pa and pb
1) Suppose demand for smart tablets is estimated to be Q = lOOOSp +10pa2pb+0.l Y where p is the price of tablets, pa and pb are the prices of related goods, A and B, respectively. If P = 80. pa = 50 : pb = 150, and Y = $20,000. a. What is the price elasticity of demand? Explain your result. Also discuss possible impacts of a price change on revenues in two-three lines. b. What is the cross price elasticity with respect to commodity A? Explain your result and give an example of what commodity A might be. c. What is the cross price elasticity with respect to commodity B? Explain your result and give an example of what commodity B might be. d. What is the income elasticity? Explain your result. 2) According to a recent study a 100 % increase in the price of water for heavy users in Santa Cruz, California, caused the quantity of water they demanded to fall by average of 20%. (Before the increase, heavy users initially paid $1.55 per unit, but afterward they paid $3.10 per unit.) In percentage terms, how much did their water expenditure (price times quantity) which is the water com pany's revenue change? (Hint: See the Amazon example)
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