Question

An analyst at the Green Car Co. Ltd. estimated the following demand function for the electric vehicles it sells:
$Q_E=0.75-1.5P_{E} +2.5P_F - 0.5P_B+3.2l$
where $Q_E$ = Number of electric vehicles (in thousand per year), $P_E$ = Unit price of electric vehicle (Rs. in Lakh), $P_F$ = Average unit price of vehicle using fossil fuels (Rs. in Lakh), $P_B$ = Unit price of battery used in electric vehicle (Rs. in Lakh), $l$ = Personal disposable income (Rs. in Lakh).
Let $P_E$ = Rs. 6.5 Lakh, $P_F$= Rs. 4.5 Lakh, $P_B$ = Rs. 0.5 Lakh and $l$ = Rs. 10 Lakh. Then the income elasticity of demand ($e_{Qgl}$) and the cross price elasticity of demand ($e_{Qgp_f}$) satisfy

• A. 0.98 $e_{Qgl}$≤0.99 and 0.33 $e_{Qgp_f}$ ≤ 0.34
• B. 0.94 $e_{Qgl}$ ≤0.95 and 0.45 $e_{Qgp_f}$≤0.46
• C. 0.98 $e_{Qgl}$ ≤0.99 and 0.45 $e_{Qgp_f}$≤0.46
• D. 0.94 $e_{Qgl}$ ≤0.95 and 0.33 $e_{Qgp_f}$ ≤ 0.34

Answer 1

Answer: (D)

0.94 $e_{Qgl}$ ≤0.95 and 0.33 $e_{Qgp_f}$ ≤ 0.34

Answer 2

The correct option is (D): 0.94 $e_{Qgl}$ ≤0.95 and 0.33 $e_{Qgp_f}$ ≤ 0.34