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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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