Answer Happy

Assume that the demand for good B is given by the following demand function: (3 marks) lb = 40 - 6PB + 0.9Y - 2PA + 1.4PC + 13QUB = = Where QB is the demand for good B; Pg is its price; Y is consumer income; PA and Pc are the prices of other goods and QUg is the quality of good B. Assume that PB = 3; Y = 1000; PA = 5; Pc = 5; QUB = 6. Which of the following correctly provides the relevant elasticities of demand and the correct explanation? YED is income elasticity of demand; CEDBC is cross price elasticity of demand between goods B and C and QuEDg is the quality elasticity of demand for good B. a a (a) YED = 8.49; CEDBC = 0.066; QUED2 = 0.736. Good B is a normal good; goods B and C are complements; there is a positive impact on demand for good B from quality improvements. (b) YED = 0.9; CEDBC = 0.094; QUEDB = 13. Good B is a normal good; goods B and Care substitutes; there is a positive impact on demand for good B from quality improvements. (c) YED = 8.49; CEDsc = 0.066; QUED; = 0.736. Good B is a normal good; goods B and Care substitutes; there is a positive impact on demand for good B from quality improvements. (d) YED = 0.9; CEDBC = 0.094; QUEDs = 13. Good B is a normal good; goods B and Care substitutes, there is a positive impact on demand for good B from quality improvements.