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    effect of the increase in per capita disposable income

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    Please help with the following problems.

    Q= 400 - 3P + 4I + 0.6A

    Q=quantity demanded P=price I= per capita disposable income A= advertising expense

    Population is constant

    1) Over the next 10 years per capita, disposable income is expected to rise by $5,000. What effect will this have on the firm's sales?

    2) How much should it raise prices to offset the effect of the increase in per capita disposable income?

    3) If prices are raised by this amount, will it increase or decrease the price elasticity of demand?

    Please explain steps clearly and simply.

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    Solution Preview

    1) Over the next 10 years per capita disposable income is expected to rise by $5,000. What effect will this have on the firm's sales?

    The coefficient before each variable shows the marginal change in Q with respect to the change in the independent variable. That is, "4" means that for $1 increase in I, the Q will rise by 4 units. In this case, when I increases ...

    Solution Summary

    The effect of the increase in per capita disposable income is depicted in this posting.

    $2.19