Using the following equation for the demand for a good or service, calculate the price elasticity...

Question:

Using the following equation for the demand for a good or service, calculate the price elasticity of demand, cross elasticity with good {eq}x {/eq}, and income elasticity.

{eq}Q = 8 - 2P + 0.10I + P_x {/eq}

{eq}Q {/eq} is quantity demanded, {eq}P {/eq} is the price of the product, {eq}I {/eq} is income, and {eq}P_x {/eq} is the price of a related good. Assume that {eq}P {/eq} = $10, {eq}I {/eq} = $100, and {eq}P_x {/eq} = $20.

Elasticity of Demand:

The elasticity of demand is of various different types like income elasticity of demand, cross-price elasticity of demand, and the price elasticity of demand. The values for all these measures lie between zero and infinity. All these show the response of quantity demanded of the good due to the change in income, price of other good, and price of own good.

Answer and Explanation: 1

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Given:

{eq}\begin{align*} Q &= 8 - 2P + 0.10I + {P_x}\\ P &= \$ 10\\ I &= \$ 100\\ {P_x} &= \$ 20 \end{align*} {/eq}

Substituting the values...

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The Elasticity of Demand: Definition, Formula & Examples

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Chapter 3 / Lesson 7
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The elasticity of demand is the percent change in quantity demanded in every one percent change in price (ceteris paribus). Review this definition and calculate the examples for arc elasticity and price-point elasticity using the formulas provided.


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