Question: The demand function of a good is given by Q = a bP cPA + dY where P is the price of the good, PA

The demand function of a good is given by Q = a bP cPA + dY where P is the price of the good, PA is the price of an alternative good, Y is income and the coecients a, b, c and d are all positive. It is known that P =50, PA =30, Y =1000 and Q =5000.(a) Is the alternative good substitutable or complementary? Give a reason for your answer. (b) Find expressions, in terms of b, c and d, for the (i) price elasticity of demand; (ii) cross-price elasticity of demand; (iii) income elasticity of demand. (c) The cross-price elasticity is 0.012. The income elasticity is four times the magnitude of the price elasticity. When income increases by 10%, the demand increases by 2%. Determine the values of a, b, c and d.

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