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23 February, 22:41

Suppose the own-price elasticity of demand for good X is - 3, its income elasticity is 1, its advertising elasticity is 2, and the cross-price elasticity of demand between it and good Y is - 4. Determine how much the consumption of this goodwill change if the price of good X decreases by 5 percent.

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  1. 24 February, 00:44
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    Consumption of good will increase by 15%

    Explanation:

    Price Elasticity of Demand : is demand responsiveness to price change.

    Ped = Percentage change in demand / percentage change in price

    Ped = %ΔQ / %ΔP

    %ΔP = - 5; Pe = - 3 [Given]

    As per formula:

    -3 = %ΔQ / - 5

    %ΔQ = (-3) X (-5) = + 15%

    Percentage change (increase) in Quantity = 15%
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