Jasmin spends all her income on three goods: x, y, and z. The initial prices are...

 

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Jasmin spends all her income on three goods: x, y, and z. The initial prices are (PxPy, Pz)=(1,2,3). Her initial demands for the three goods are (x, y, z) = (500, 450, 200). Now the price of good x decreases to $0.90 (the other prices do not change). Her new demands for the three goods are (x, y, z) = (x", 460, 180). a. Calculate her cross-price arc elasticities of demand Eyx, and Exx. (4) b. Calculate her arc elasticity of demand for x, Ex. (4) c. What effect would a tax on good x have on the market equilibrium in good y and good z? (6) Jasmin spends all her income on three goods: x, y, and z. The initial prices are (PxPy, Pz)=(1,2,3). Her initial demands for the three goods are (x, y, z) = (500, 450, 200). Now the price of good x decreases to $0.90 (the other prices do not change). Her new demands for the three goods are (x, y, z) = (x", 460, 180). a. Calculate her cross-price arc elasticities of demand Eyx, and Exx. (4) b. Calculate her arc elasticity of demand for x, Ex. (4) c. What effect would a tax on good x have on the market equilibrium in good y and good z? (6)

Answer rating: 100% (QA)

Answer a Eyx frac1045010010 10045 approx 222 Ezx frac2020010010 1010 1 b First calculate ... View the full answer