Purchase Solution

# Income Elasticity

Not what you're looking for?

During the past year,MP sold 150,000pairs of brake shoes at an average wholesale price of \$13per pair. This year, GNP per capita is expected to fall from \$21,000 to 19000 as nation enters a steep recession. Without any price change, MP expects current year sales to fall to 100,000.

a. Calculate the implied arc income elasticity of demand.
b. Given the projected fall in income, sales mgr thinks current volume of 150,000 units can only be maintained with a price cut of \$1 per unit. on this basis,calculate the implied arc price elasticity of demand.
c. Holding all else equal, would a further increase in price result in higher or lower total revenue?

##### Solution Summary

The solution answers the question(s) below.

##### Solution Preview

a. Calculate the implied arc income elasticity of demand.

Arc elasticity measures the average elasticity over some range of a function.
In this case, ELgdp = (dQ/dGDP) * [(GDP1 + GDP 2)/(Q1 + Q2)]
ELgdp = ...

##### Economic Issues and Concepts

This quiz provides a review of the basic microeconomic concepts. Students can test their understanding of major economic issues.

##### Basics of Economics

Quiz will help you to review some basics of microeconomics and macroeconomics which are often not understood.

##### Economics, Basic Concepts, Demand-Supply-Equilibrium

The quiz tests the basic concepts of demand, supply, and equilibrium in a free market.

##### Elementary Microeconomics

This quiz reviews the basic concept of supply and demand analysis.

##### Pricing Strategies

Discussion about various pricing techniques of profit-seeking firms.