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(a) Explain why the cross elasticity of demand for substitute goods is positive and the cross elasticity of demand for complements is negative. (b) Explain why the price elasticity of demand changes

(a) Explain why the cross elasticity of demand for substitute goods is positive and the cross elasticity of demand for complements is negative.

(b) Explain why the price elasticity of demand changes along a linear demand curve.

(c)

Income Px Py Quantity of good x Quantity of good y
$30,000 $6 $3 20 
$50,000 $6 $4  5 10

(i) Using the information in the table, calculate the income elasticity of demand for good X and characterize the good. Use the midpoint formula.

(ii) Can you calculate the income elasticity of demand for good Y? If you can, show your calculation and characterize the good. If you cannot, explain why.

Jul 04 2021 View more View Less

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