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My question:

Income elasticity of demand for apple is $\gamma$. Cross elasticity of demand between apple quantity and orange price is $\psi$, What is the impact on apple's revenue if consumers' income increase by x% and orange price fall by y%?

What I think the answer is?: Am I right I say that revenue would increase for the first instance (income) and the revenue will fall for the second instance. However, how would I know the percentage of revenue increase in the first instances and fall in the second instances?

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Hints:

  • Looking at the definitions, if the income elasticity of demand for apples is 2, how much does apple demand increase when consumers' income increase by 10%?

  • Looking at the definitions, if the cross elasticity of demand between apple quantity and the orange price is 0.5, how much does apple demand decrease when the orange price falls by 15%?

  • How might you combine the increase with the decrease?

Multiplication might be a useful tool.

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