If the cross-price elasticity of demand for a good is estimated at -3.9, estimate the percentage change in quantity demanded of the good when the price of the related good increases from $30 per unit to $75 per unit
Also, if it is known that the income elasticity of demand for the same good is 2.5, estimate the percentage change in demand if consumer income increases from $100 to $300.
Percentage change in price of related good = [($75 - $30 )/ $30] × 100 = 150%
Cross-price elasticity of demand = -3.9
Expected percentage change in quantity demanded= 150 × -3.9 = -585%
Thus, quantity demanded is expected to fall by 585%.
Percentage change in income = [($300-$100 ) / 100 )] × 100 = 200%
Income elasticity of demand = 2.5
Expected percentage change in demand = 200 × 2.5 = 500%
Hence, demand for the good is expected to increase by 500%.
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