Econ Hmwk Question

Econ Hmwk Question - 5%) % Change in Q = 15% % Change in Q...

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Aside : % Change in Price = $500/$20000 * 100% = 2.5% Yawen (Wendy) Yang, Amanda Kombrowski, Charles Ip, Stefan Mak, Rosanne Lai Econ 101 Homework Question Given : Price Elasticity of Car = -1.2 Income Elasticity of Car = +3 Average Cost of Car = $20 000 Average Drop in Car Price = $500 Average Income Drop = 5% Find : % Change in Sales? Solution : % Change in Sales = Net % Change in Q D % Change in Q D derived from Income Elasticity : Income Elasticity =% Change in Q % Change in Income 3 = % Change in Q % 5 (Sub in Given values) % Change in Q = 3 * (
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Unformatted text preview: 5%) % Change in Q = 15% % Change in Q D derived from Price Elasticity : Price Elasticity =% Change in Q % Change in Price-1.2 = % Change in Q . % 2 5 (Sub in Given values) % Change in Q = -1.2 * ( 2.5%) % Change in Q = 3 % Net % Change in Q D = + = 15% + 3% = 12% Therefore, Sales of cars during the recession will DECREASE BY 12% . The $500 discount will not increase total revenue since the sales of cars will decrease by 12% even with the discount taken into account....
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This note was uploaded on 12/16/2010 for the course ECON 101 taught by Professor Vanderwaal during the Fall '08 term at Waterloo.

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