Suppose the own price elasticity of demand for good X is -3, its income elasticity is -2, its advertising elasticity is 4, and the cross-price elasticity of demand between it and good Y is -2. Determine how much the consumption of this good will change if: Instructions: Enter your responses as percentages. Include a minus (-) sign for all negative answers. a. The price of good X decreases by 7 percent. percent b. The price of good Y increases by 10 percent. percent c. Advertising decreases by 2 percent. percent d. Income increases by 4 percent. percent Prev

a. 21 percent

b. -20 percent

c. -8 percent

d. -8 percent

Explanation:

Own price elasticity = -3

Income elasticity = -2

Advertising elasticity= 4

Cross price elasticity = -2

Formula for elasticity is given by,

a. When price of good X decreases by 7 percent.

Thus, as price decreases by 7% quantity rises by 21%.

b. The price of good Y increases by 10 percent.

Thus, as price of good Y increases by 10 percent, demand for good X falls by 20 percent.

c. Advertising decreases by 2 percent.

Thus, a 2 percent decline in advertising will lead to a 8 percent fall in quantity of good X.

d. Income increases by 4 percent.

Thus, when income increases by 4 percent, quantity decreases by 8 percent.

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