Suppose that during a given year:
(a) The price of TV sets increases by 4 percent in Japan, (2) the dollar depreciates by 5 percent with respect to the yen, (3) consumer incomes in the U.S. increase by 3 percent, (4) the price elasticity of demanrd for imported TV sets in the U.S. is 1.5, and (5) consumers income elasticity of demand for TV sets in the United States is 2.
(a) If the price of the imported TV set was 300 in the U.S. at the beginning of the year, approximately how much would you expect the price of the same imported TV set to be in the U.S. as the end of the year?
(b) By how much would the quantity demanded of imported TV sets in the United States change as a result of the change in price only?
(c) By how much would the demand for imported TV sets int he U.S. change as a result of the increase in consumer income alone?
(d) By how much would thew demand for imported TV sets in the U.S. change as a result of both the change in price and in incomes?
(a) The 4 % increase in the price of TV sets in Japan and the 5% depreciation of the dollar leat to a total increase of 9 % in the dollar price of imported TV sets in the U.S. from 300 to 327.
(b) The change in price only refers to the import price.
(a) Increase in price of TV due to price change in Japan = 4%
Increase in price due to depreciation in US$ against Japanese Yen=5%
Total increase in price = 9%
This solution determines whether the demand for TV sets increase or decrease based on the factors of price and income.