Suppose the demand for a commodity Q is the following function of its own price , price of another commodity , and income Y and A is a constant term.
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JNU SIS 2021 Question 47: Demand theory and elasticity
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Suppose the demand for a commodity Q is the following function of its own price P_Q, price of another commodity P_X, and income Y and A is a constant term. Q = AYP_X^β/P_Q^α, α > 0 (A) The demand for Q is elastic when α > 1 and X is a substitute for commodity Q when β > 0. (B) The demand for Q is inelastic when α > 1 and X is a complement for commodity Q when β > 0. (C) The demand for Q is elastic when α > 1 and X is a substitute for commodity Q when β < 0. (D) The demand for Q is inelastic when α > 1 and X is a substitute for commodity Q when β < 0.
Also written as: Suppose the demand for a commodity Q is the following function of its own price P_Q, price of another commodity P_X, and income Y and A is a constant term. Q = AYP_X^(beta)/P_Q^(alpha), alpha > 0
Demand theory and elasticity has come up 161 times in 7 exams since 2004.
What this question tests
This question is on Price elasticity of demand, part of Demand theory and elasticity in Microeconomics.
How responsive quantity is to price, at a point, along a linear curve, and for constant-elasticity demand.
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