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Real Life Demand Elasticity Calculations

DQ1: Elasticity. Find the real life elasticity in the attached power point slides. Based on the elasticity of demand, discuss one of the products:
a) Is it elastic, unit elastic (~ -1), or inelastic?
b) If something happened to reduce supply and resulted in a 10% increase in price, what would the % change be to quantity?
c) What would you expect the % change to be to industry total revenues (TR)?

DQ 2: Income and cross-elasticity. Related to a product, probably the one from DQ1:
a) is it a "normal" or an "inferior" good?
b) What is the income elasticity? If it is not given, estimate what you think it might be.
c) if income for the customers who buy your product goes up by 10%, what do you think the change in quantity sold would be?
d) What are 1 or 2 complementary products and substitute produces?


Solution Preview

DQ1: Product = meals at restaurants. Ed = -2.27
a) Demand for meals at restaurants is price elastic because it is smaller (i.e. a larger negative number) than -1.

Ed = (% change in quantity)/(% change in price)
-2.27 = (% change in quantity)/(10)
% change in quantity = -22.7%

Let P1 and ...

Solution Summary

Based on a Power Point presentation on the elasticity of demand, this solution shows how to calculate the price elasticity and income elasticity of a real-life product.