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The general linear demand for good X is estimated to be Q-18,000-175P+0.35M-16PR where P is the price of good X, M is average income
The general linear demand for good X is estimated to be Q-18,000-175P+0.35M-16PR where P is the price of good X, M is average income of consumers who buy good X, and P. is the price of related good R. The values of P, M, and P. are expected to be $65, $52,000, and $100, respectively. Use these values at this point on demand to make the following computations. a. Compute the quantity of good X demanded for the given values of P, M, and PR. b. Calculate the price elasticity of demand E. At this point on the demand for X, is demand elastic, inelastic, or unitary elastic? c. How would increasing the price of X affect total revenue? Explain your answer in terms of the price elasticity of demand. d. Calculate the income elasticity of demand EM. e. Is good X normal or inferior? Explain in terms of the income elasticity. f. Explain how a 1.75 percent decrease in income would affect demand for X, all other factors affecting the demand for X remaining the same. g. Calculate the cross-price elasticity ExR. h. Are the goods X and R substitutes or complements? Explain in terms of cross price elasticity. i. Explain how a 2.5 percent increase in the price of related good R would affect demand for X, all other factors affecting the demand for X remaining the same.
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Lets break down the problem and calculate each part stepbystep Part a Compute the quantity of good X demanded for the given values of P M and PR Given P 65 M 52000 PR 100 The demand function is Q 1800...Get Instant Access to Expert-Tailored Solutions
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