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Unformatted text preview: cross-price elasticity for substitute goods. Do the estimates make sense economically? Why or why not? 3. Suppose the demand function is: A P P Q Y X X 5 . 1 6 . 1 1 . 2 104 + + = where Px is price of X, Py, is the price of a substitute good Y and A is the dollars spent of advertising. Answer the following: a. Find the cross-price elasticity b. Derive a formula for income elasticity (assuming demand is homogeneous of degree 0, and there are no other effects than those listed)....
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- Spring '08