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Interpreting Elasticity Coefficients of Demand

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6. You have the following information for your product
a. The price elasticity of demand is -0.9
b. the income elasticity of demand is 0.5
c. the cross-price elasticity of demand between your good and a related good is 2.0

What can you determine about consumer demand for your product from this information?

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Solution Summary

Solution predicts the behavior of demand with the help of information provided.

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The price elasticity of demand is -0.9. Negative sign indicates that price and quantity demanded have inverse relationship (Keeping the other factors unchanged). If the price of product increases by 1%, quantity demanded will decrease by ...

Solution provided by:
Lokesh Jain, MSc
Education
  • BEng (Hons) , Birla Institute of Technology and Science, India
  • MSc (Hons) , Birla Institute of Technology and Science, India
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