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

The Correct Option is D

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