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Cross Price Elasticity of Demand?

Posted by admin
golf supply
Elise asked:


I’m confused…help!! And write out how you get there too please, don’t just give the answer.

Consider the following demand and supply relationships in the market for golf balls: Qd = 90-2P-2T and Qs = -9+5P-2.5R, where T is the price of titanium, a metal used to make golf clubs, and R is the price of rubber.

R = 2 and T = 10

I already figured:
Equilibrium price = 12
Quantity = 46
Price Elasticity of Demand = -.523
Price Elasticity of Supply = -1.304

So my question is:
At the equilibrium values, calculate the cross-price elasticity of demand for golf balls with respect to the price of titanium.

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    • This entry was posted on Friday, December 18th, 2009 at 1:22 am and is filed under golf balls. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.

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    No Responses to “Cross Price Elasticity of Demand?”

    1.   Jurij-EU   Ω² Says:
      December 20th, 2009 at 9:29 pm

      Qd = Qs
      Qd = 90 - 2P - 2T
      Qs = -9 + 5P - 2.5R
      R = 2
      T = 10
      Qd = 90 - 2P - 2×10 = 70 - 2P
      Qs = -9 + 5P - 2.5×2 = 5P - 14
      5P - 14 = 70 - 2P
      84 = 7P
      P = 12
      Qs = Qd = 70 - 2×12 = 5×12 - 14 = 46

      Exd(T) = (∂Qd/∂T) x (T/Qd)
      ∂Qd/∂T = -2
      T = 10
      Exd(T) = -2 x 10 / Qd = -20/46 = -10/23 ≈ -0.43478

      Exs(R) = (∂Qs/∂R) x (R/Qs) = -2.5×2/46 ≈ -0.1087

      Es = (∂Qs/∂P) x P/Qs = 5×12/46 ≈ 1.3043
      Ed = (∂Qd/∂P) x P/Qd = -2×12/46 ≈ -0.5217