Explore BrainMass
Share

# Calculating changes in demand

This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

Suppose that the price elasticity of demand for cigarettes is 0.46 in the short-run and 1.89 in the long-run, the income elasticity of demand for cigarettes is 0.50, and the cross-price elasticity of demand between cigarettes and alcohol is -0.70. Suppose also that the price of cigarettes, the income of consumers, and the price of alcohol all increase by 10%. Calculate by how much the demand for cigarettes will change (a) in the short-run and (b) int the long-run.

https://brainmass.com/economics/short-and-long-run-cost-functions/calculating-changes-in-demand-250784

#### Solution Preview

Solution:

1. In the short run

Change in demand=(1+price elasticity of demand in short run *change in price)*(1+income elasticity of demand*change in income)*(1+cross price elasticity )-1
...

#### Solution Summary

Solution describes the steps needed to predict the change in demand based upon given elasticities and variations in several parameters.

\$2.19