3 Price elasticity and cross price elasticity of demand Suppose an individual who derives utility u(x, y) from consuming a units of good X and y units of good Y. Prices of goods X and Y are respectively Pa = 1 and py=p. Furthermore, the individual has a budget m. u(x, y) takes the following form: a> 0 and 3 > 0. (A) Derive the demands for goods X and Y. (B) Compute the price elasticity of demand for good Y. (C) Compute the cross price elasticity of good X for a change in p.

3 Price elasticity and cross price elasticity of demand Suppose an individual who derives utility u(x, y) from consuming a units of good X and y units of good Y. Prices of goods X and Y are respectively Pa = 1 and py=p. Furthermore, the individual has a budget m. u(x, y) takes the following form: a> 0 and 3 > 0. (A) Derive the demands for goods X and Y. (B) Compute the price elasticity of demand for good Y. (C) Compute the cross price elasticity of good X for a change in p.

Micro Economics For Today

10th Edition

ISBN:9781337613064

Author:Tucker, Irvin B.

Publisher:Tucker, Irvin B.

Chapter6: Consumer Choice Theory

Section: Chapter Questions

Problem 3SQ

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