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Question
The following table gives the current price, quantity, and price elasticities of the linear demand curves for pencils, paper and scissors. The columns Ercunder the Price Elasticities heading are calculated as Erc = (
)
. The terms r and c refer to the row of the table and the column under the price elasticities heading, respectively. For example, if r is one and c is two, the value E12is the responsiveness of pencil demand to changes in the paper price (i.e., a cross-price elasticity). The demand curves for each good are in the form Qr = ar + brP1 + crP2 + drP3 . Using the information in the table, derive the demand curve for each good.| Price Elasticities | |||||
| Demand Item | Own Price | Quantity | Er1 | Er2 | Er3 |
| Pencils | 0.35 | 25,000 | -1.2 | 0.25 | 0 |
| Paper | 2.00 | 90,000 | 0.01 | -0.85 | 0.45 |
| Scissors | 3.15 | 1,500 | 0 | 1.20 | -1.75 |
Answer
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