Compute the cross-price elasticity of demand goods


Explain price elasticity and calculate cross price elasticity of demand.

1. A study sponsored by the American Medical Association suggests that the absolute value of the own price elasticity for surgical procedures is smaller than that for the own price elasticity for office visits. Explain why this would be expected.

2. The demand for company X's product is given by Qx = 12 - 3Px + 4Py Suppose good X sells for $3.00 per unit and good Y sells for $1.50 per unit.

Compute the cross-price elasticity of demand between goods X and Y at the given prices.

Are goods X and Y substitutes or complements?

Illustrate what is the own price elasticity of demand at these prices?

How would your answers to parts a and c change if the price of X dropped to $2.50 per unit?

 

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Business Economics: Compute the cross-price elasticity of demand goods
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