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Notes On Price Elasticity And Income Elasticity

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1. Option 1 QD = - 5200 - 42P + 20PX + 5.2I + 0.20A + 0.25M (2.002) (17.5) (6.2) (2.5) (0.09) (0.21) R2 = 0.55 n = 26 F = 4.88 P= 500, M = 5000 A = 10,000 I = 5,500 C = 600 QD = -5200 – 42 (500) + 20,600) + 5.2 (5,500) + .20 (10,000) + 0.25 (5,000) = 17,650 Price Elasticity = (P/Q) (Q/P) Q/P = -42 .Price Elasticity (Ep) = (P/Q) (-42) (500/17650) = -1.19 (Microwave oven’s Elasticity (EM) = (P/Q) (0.25) (5000/17650) = 0.07 Income-elasticity (EI) = (P/Q) (5.2) (5500/17650) = 1.62 Advertisement-elasticity (EA) = (P/Q) (0.20) (10000/17650) = 0.11 Cross- price elasticity (EC) = 20(600/17560) = 0.68 Amount in demand = AD P (in dollars) = Price of the product = 5 dollars per 3-pack…show more content…
Advertisement-elasticity is 0.11, a 1% increase in advertising expense will raise the quantity demanded by 0.11%. So demand is inelastic to advertising. The microwave ovens elasticity is 0.07, which shows a raise of 1% in the number of ovens in the area which increases the quantity demanded by 0.07%. This means that demand is inelastic. The price elasticity exceeds 1. This means that the percentage of quantity demanded will increase with a decrease in product price. This connection may lead to increased shares. The company may need to cut its price. Q = -7909.89 = 79.1P, price substitution -7909.89 + 79.1(100) = 0.11 -7909.89 + 79.1(200) = 7910.11 -7909.89 + 79.1(300) = 15820.11 -7909.89 + 79.1(400) = 23730.11 -7909.89 + 79.1 (500) = 31640.45 -7909.89 + 79.1 (600) = 39550.11 The demand equation Q = -5200 - 42(P) + 5.20(5500) + 20(600) +0.2500(5000) + 0.20(10,000) So Q = 38,650 – 42P P = 38,650/42-Q/42 And P = - 5200/45 + Q/45, as Q = 5200 =45P 5200 + 45P = 38,650 - 42P So 87P = 33,450 P = 384.48 and Q = 5200 + 45(384.48) So Q = 22,501.6 The equilibrium quantity rates are at 22, 501 units. The equilibrium price rates are at 384. And, the equilibrium quantity and price plot is where the demand and supply intercept. For demand, changes in the demand for the product causes changes in the income of consumers. Other factors include, pricing related goods where competitor products may account for changes in
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