Finance 30210
Quiz #5
Name__________________________
Section_________
1)
Suppose that you have the following demand curve:
I
P
Q
02
.
ln
35
.
5
.
8
ln
+
−
=
P
is the current price and
I
is average income in thousands. Assume that average
income is equal to $80,000 and that the current price is $45.
a)
Calculate the current price elasticity and income elasticity.
(
)
6
.
1
80
02
.
02
.
ln
%
%
35
.
ln
ln
%
%
=
=
=
∆
∆
=
∆
∆
=
−
=
∆
∆
=
∆
∆
=
I
I
I
Q
I
Q
P
Q
P
Q
I
P
ε
ε
b)
Suppose that average income rises by 15%.
You decide that want to raise your price
by 20%.
What impact will this have on your sales (percentage)?
I
P
Q
I
p
∆
+
∆
=
∆
%
%
%
ε
ε
(
)(
)
(
)(
)
%
17
15
6
.
1
20
35
.
%
=
+
−
=
∆
Q
c)
By how much could you raise (percentage) your price and maintain your current sale

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