Julia has usual preferences over X and Y, and, at current prices and income, she spends 1/2 of her income on X. Her demands for both goods respond to changes in her income, but at current prices and income the income elasticity of her demand for Y is equal to exactly 1/3 times the value of her income elasticity of demand for X. And do you know what? If the price of Y were to go up by 1 percent, the quantity of X she demands would remain unchanged. a. If the price of X were to fall, would her demand for X increase, decrease or remain unchanged? More precisely, what is the own-price elasticity of her demand for X? b. If her income were to rise, would her demand for X rise, fall or remain unchanged? More precisely, what is the income elasticity of her demand for X?
Julia has usual preferences over X and Y, and, at current prices and income, she spends 1/2 of her income on X. Her demands for both goods respond to changes in her income, but at current prices and income the income elasticity of her
a. If the price of X were to fall, would her demand for X increase, decrease or remain unchanged? More precisely, what is the own-price elasticity of her demand for X?
b. If her income were to rise, would her demand for X rise, fall or remain unchanged? More precisely, what is the income elasticity of her demand for X?
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