This preview shows pages 1–2. Sign up to view the full content.
Price Analysis
Fall Semester 2009
Homework Assignment 7
Suggested Solutions
Question 1
(a)
(
29
(
29
2
2
2
1
1
1
2
2
1
1
1
1
w
P
E
w
P
E
w
P
w
P
E
x
+
+
=
commodity
basic
wrt the
2
product
joint
of
yield
fixed
w
commodity
basic
wrt the
1
product
joint
of
yield
fixed
w
product2
joint
elasticity
E
1
product
joint
elasticity
E
2
product
joint
price
P
1
product
joint
price
P
2
1
2
1
2
1
The formula assumes that joint products are obtained in fixed proportions from the basic
commodity. Hence, w
1
and w
2
are fixed.
(b) In our example, we have
85
.
0
50
10
18
5
.
1
1
50
30
12
7
.
0
1
50
10
18
50
30
12

=

+

+
=
x
E
Problem 2
(a) The formula for cross price elasticity is
i
j
j
i
ij
Q
P
dP
dQ
E
=
Recall that if goods are complements, crossprice elasticity will be negative. For
example, if the price of gasoline rises, the sales of large cars will decline. On the other
This preview has intentionally blurred sections. Sign up to view the full version.
View Full Document
This is the end of the preview. Sign up
to
access the rest of the document.
 '07
 KAISER,H.M.

Click to edit the document details