# Demand and Forecasting

Demand and Forecasting

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Chapter 3 Demand and Forecasting

3. The Olde Yogurt Factory reduced the price of it popular Mmmmm Sundae from $2.25 to $1.75. As a result, the firm's daily sales of these sundaes have increased from 1500 per day to 1800 per day. Compute the arc price elasticity of demand over this price and consumption quantity range.

Arc price elasticity of demand = (Q2-Q1)/(Q2+Q1) *(P2+P1)/(P2-P1)

=(1800-1500)/(1800+1500)*(1.75+2.25)/(1.75-2.25)

=-0.7273

8. The demand function for bicycles in Holland has been estimated to be

Q=2,000+15y-5.5p

where Y is income in thousands of euros, Q is the quantity demanded in units, and P is the price per unit. When P= 150 euros and Y=15(000) euros, determine the following:

a. Price elasticity of demand

First we find the Q at P=150 and Y=15000

Q=2000+15*15-5.5*150=1400

Price elasticity of demand = dQ/dP*P/Q = -5.5*150/1400=-0.5893

b. Income elastcity of demand

Income elasticity of demand = dQ/dI * I/Q = 15*15/1400=0.1607

14. A study of the long-term income elasticity of demand for housing by renters is in the range of 0.8 ...

#### Solution Summary

Demand and Forecasting are emphasized.