Suppose the demand function for a firm’s product is given by
In Qdx = 3 – 0.5 In Px – 2.5 In Py + In M + 2 In A
where
Px = $10,
Py = $4,
M = $20,000, and
A = $250.
a. Determine the own price elasticity of demand, and state whether demand is elastic, inelastic, or unitary elastic.
b. Determine the cross-price elasticity of demand between good X and good Y, and state whether these two goods are substitutes or complements.
c. Determine the income elasticity of demand, and state whether good X is a normal or inferior good.
d. Determine the own advertising elasticity of demand.