Consider the Following Questions on Elasticity

question 135

Essay

Consider the following questions on elasticity:
a. If a 3% increase in income leads to a 1% increase in the quantity purchased, what is the income elasticity of demand? Is the good an inferior good?
b. The price of good Y decreases by 15% and the quantity sold of good X increases by 4%. What is the cross-price elasticity of demand for good X with respect to good Y? How are good X and good Y related?
c. The demand equation is Q^D = 15 - P. What is the price elasticity of demand at P = $6?

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Definitions:

Income Statement

A financial document that shows a company's income, expenses, and net profit over a specified period.

Dividend Payout Ratio

The percentage of earnings paid to shareholders in dividends, indicating how much money a company returns to shareholders versus reinvesting in itself.

Par Value

The face value of a bond or stock, representing the amount that the issuer agrees to pay at maturity, or the nominal value of a share.

Common Stock

A type of equity security that represents ownership in a corporation and entitles holders to vote on company matters.