Calculate income elasticity of demand advertising elasticity

Suppose you have the following hypothetical demand or sales function.

Qx= -4Px+2Py+0.20I+0.04A
and
PX = $200, (price of good X)
PY =$230, (price of good Y)
I = $1,500 (disposable per capita income)
A =$12,000 (advertizing expenditures)

1. Calculate the income elasticity of demand for product X when I= $1,500. How could we classify product X? Is product X a cyclical or noncyclical good? Is product X a luxury good or necessity? Explain why. Suppose the economy is in a recession and per capita disposable income is expected to decrease by 5%. What percentage effect on sales would you expect to take place?

2. Given that advertizing expenditures are equal to $12,000, calculate the advertising elasticity.

Solution Preview

Let's substitute everything (except I) into the equation.

Q = -4(200) + 2(230) + 0.2I + 0.04(12000)

This becomes Q = 0.2I + 140.

elasticity = dQ/dI X ...

Solution Summary

Calculate income elasticity of demand, advertising elasticity

... in the price elasticity of demand, calculate Enchantment's arc ...elasticity differ from that calculated in part ... The cross-price elasticity of demand = percentage ...

... Based on this information, calculate values for: a) quantity demanded, and ... Solution describes the steps for calculating price, income and advertising...

... to these problems describe the step by methodology to calculate price elasticity... also predicts the nature of goods based upon calculated elasticity values ...

Calculating quantity demanded, price elasticity, income elasticity of demand, and ... price, I is an index of consumer income, and A is ... (ii) Calculate the price ...

... might the true arc advertising elasticity differ from that calculated in Part C ... A. Calculate the implied arc price elasticity of demand... 8. Arc Income Elasticity. ...

... d) Calculate the cross ... to I, we get Qh/dI=0.0005 We have calculated in part ... It also calculates elasticity of demand with respect to each variable and discusses ...

How can we calculate the elasticities of demand...elasticities of demand and supply are calculated. ... are: price elasticity of demand, income elasticity of demand...

... c. Calculate the own price elasticity of demand...elasticity is less than 1, income elasticity is inelastic. Q4 "The demand for new recreational vehicles (motor ...

... monthly income = 4,000 Calculate the elasticity... price elasticity, cross price elasticity, income elasticity, and elasticity... variable X is calculated as: ∂QX ...