We want to "estimate" the supply and demand functions for good X. These functions depend on Px, the price of good X and, Py, the price of an alternative good Y. The collected market data are: Px= 6.4, Py = 50, Qx = 23, Its own-price elasticity of supply is 0.2, cross-price elasticity of supply is 0.1. Its own-price elasticity of demand is -0.5, cross-price elasticity of demand is 1.5. Assuming that the supply and demand are linear functions with respect to the two goods, use the aforementioned information to "recover" the two functions. (You are asked to "estimate" 6 parameters.) Verify that your "estimated" functions are consistent with the data on market prices and quantity.
We want to "estimate" the supply and demand functions for good X. These functions depend on Px, the price of good X and, Py, the price of an alternative good Y. The collected market data are: Px= 6.4, Py = 50, Qx = 23, Its own-price elasticity of supply is 0.2, cross-price elasticity of supply is 0.1. Its own-price elasticity of demand is -0.5, cross-price elasticity of demand is 1.5. Assuming that the supply and demand are linear functions with respect to the two goods, use the aforementioned information to "recover" the two functions. (You are asked to "estimate" 6 parameters.) Verify that your "estimated" functions are consistent with the data on market prices and quantity.
Chapter5: Elasticity Of Demand And Supply
Section: Chapter Questions
Problem 1.1P: (Calculating Price Elasticity of Demand) Suppose that 50 units of a good are demanded at a price of...
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Transcribed Image Text:We want to "estimate" the supply and demand functions for good X. These functions
depend on Px, the price of good X and, Py, the price of an alternative good Y. The
collected market data are:
Px=6.4, Py = 50, Qx = 23,
Its own-price elasticity of supply is 0.2, cross-price elasticity of supply is 0.1.
Its own-price elasticity of demand is -0.5, cross-price elasticity of demand is 1.5.
Assuming that the supply and demand are linear functions with respect to the two goods,
use the aforementioned information to "recover" the two functions. (You are asked to
"estimate" 6 parameters.) Verify that your "estimated" functions are consistent with the
data on market prices and quantity.
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