QUESTION 19

The extended demand function of good X is:

QDX = 1200 - 10 PX + 20 PY + 0.25 M where:

QDX = quantity demanded of good X

PX = Price of good X

PY = Price of related good Y (related in consumption to good X)

M = Average consumer income .

Fix the following variables:

PX =400

M =20,000

Assume:

PY changes from $10 to $5

What is the cross-price elasticity of the demand of good X with respect to PY [Use the arc elasticity formula.]

	a.	-0.69
	b.	0.69
	c.	0.87
	d.	.06

QUESTION 20

Based on your answer to the previousquestion,goods X and Y are:

	a.	inelastic
	b.	complements
	c.	inferior
	d.	substitutes