# Cross Elasticity

1. The demand curve for a product is given by Qxd=1200-3Px-0.1Pz where Pz= \$300.
a. What is the own price elasticity of demand when Px=\$140? Is demand elastic or inelastic at this price? What would happen to the firm’s revenue if it decided to charge a price below \$140?
b. What is the own price elasticity of demand when Px= \$240? Is demand elastic or inelastic at this price? What would happen to the firm’s revenue if it decided to charge a price above \$240?
c. What is the cross-price elasticity of demand between good X and good Z when Px=\$140? Are goods X and Z substitutes or complements?

2. You are a division manager at Toyota. If your marketing department estimates that the semiannual demand for the Highlander is Q=150,000-1.5P, what price should you charge in order to maximize revenues from sales of the Highlander?
10. Let demand and supply for good X be Qd =60-6P and Qs =4+2P.
a. Find equilibrium quantity and price which clear market?
b. What is the price elasticity of demand (PED) at P=4?
c. What is the price elasticity of supply (PES) at equilibrium?
d. Which quantity and price (on demand equation) make maximum total revenue for producer of X?
e. What is the size of the consumer surplus at equilibrium?
f. What is the cost of production at equilibrium?
g. If income increases by 20%, the demand shifts to Qd =70-4P, what is the income elasticity? Also, what kind of good is X with this income elasticity?
h. If price of good Y increases by 10%, the demand shifts to Qd =44-8P, what is the cross elasticity? Also, what is the economic term used for a good with this cross elasticity?

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