Question
Consider the following demand function for good A: QD = 175 - 5PA - 5 PB - (0.01 - a/500) Y + 0.1 L 2
Consider the following demand function for good A:
QD = 175 - 5PA - 5 PB - (0.01 - a/500) Y + 0.1 L2
Where a=4 and PA is the price of good A; PB is the price of another good, good B; Y is income; and L is time spent on leisure measured in hours. Assume PA = $5, PB = $5, Y = $20 000, and L = 20. 1.Using the point method, calculate price elasticity of demand at the current price level.
2. Is good A a normal good or inferior good?
Suppose the price of good B goes up to $6. 3. Has the demand for good A become more or less elastic? Explain all the answers in detail
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Macroeconomics
Authors: Paul Krugman, Robin Wells, Iris Au, Jack Parkinson
3rd Canadian edition
1319120083, 1319120085, 1319190111, 9781319190118, 978-1319120054
