DemandD=50p−0.5y1.8,p=price,y=income. Find price andincome elasticities.
Taking logs gives lnD=ln 50−0.5 lnp+1.8 lny. Therefore ∂lnD/∂lnp=−0.5 and ∂lnD/∂lny=1.8. The negative-half/1.8 choice gives the signed elasticities. The positive-half option…
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DemandD=50p−0.5y1.8,p=price,y=income. Find price andincome elasticities.
Answer and explanation
Correct answer D
Taking logs gives lnD=ln 50−0.5 lnp+1.8 lny. Therefore ∂lnD/∂lnp=−0.5 and ∂lnD/∂lny=1.8. The negative-half/1.8 choice gives the signed elasticities. The positive-half option is the magnitude of price elasticity, a different convention; 5 and 18 misplace decimals and 1.8/0.5 interchanges the exponents.
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UGC NET Economics