Suppose the Demand Function for a Consumer Is Given By x

question 9

Essay

Suppose the demand function for a consumer is given by $x \left( p _ { x } , p _ { y } \right) = \left( \frac { 4 p _ { y } } { p _ { x } } \right) ^ { 2 }$
a.What is the own-price elasticity of demand for x?
b What is the cross-price elasticity of demand for x?
c.What happens to spending on x as the price of x increases?
d.What is the income elasticity of demand for x? What does this tell you about what kind of good x must be?

---

Definitions:

Opportunity Cost

The price paid for not choosing the next most favorable option when deciding or picking between different possibilities.

Term Deposit

A bank deposit with a fixed term and typically a fixed rate of interest, where withdrawal can only occur after the term ends without penalty.

Holding Cash

The practice of keeping money in the form of physical currency as a store of value or for transactions.

Money Demand Curve

A graphical representation showing the relationship between the quantity of money people want to hold and the interest rate, under the assumption that all other determinants of demand are unchanged.