Consider the following demand function for frozen dinners where QD is the quantity of frozen dinners demanded per week, P is the price per frozen dinner, PF is the price per fast food meal, Y is the average yearly consumer income, and A is the number of advertisements for frozen dinners. Demand Function for Frozen Dinners: QD = 1,000 – 10P + 20PF – 0.01Y + A Suppose that a frozen dinner sells for $4, a fast food meal sells for $6, average yearly consumer income is $50,000, and that there are 20 advertisements for frozen dinners. Calculate and interpret the income elasticity of demand. Calculate and interpret the cross-price elasticity of demand with respect to fast food meals.
Consider the following demand function for frozen dinners where QD is the quantity of frozen dinners demanded per week, P is the price per frozen dinner, PF is the price per fast food meal, Y is the average yearly consumer income, and A is the number of advertisements for frozen dinners. Demand Function for Frozen Dinners: QD = 1,000 – 10P + 20PF – 0.01Y + A Suppose that a frozen dinner sells for $4, a fast food meal sells for $6, average yearly consumer income is $50,000, and that there are 20 advertisements for frozen dinners. Calculate and interpret the income elasticity of demand. Calculate and interpret the cross-price elasticity of demand with respect to fast food meals.
Chapter4: Demand, Supply, And Market Equilibrium
Section: Chapter Questions
Problem 7P
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Consider the following demand function for frozen dinners where QD is the quantity of frozen dinners demanded per week, P is the
Demand Function for Frozen Dinners: QD = 1,000 – 10P + 20PF – 0.01Y + A
Suppose that a frozen dinner sells for $4, a fast food meal sells for $6, average yearly consumer income is $50,000, and that there are 20 advertisements for frozen dinners.
- Calculate and interpret the income
elasticity of demand . - Calculate and interpret the cross-price elasticity of demand with respect to fast food meals.
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