KUESTION TWO A. Empirical estimates suggest the following price elasticity of demand: 0.6 for Coca Cola; 4.0 for foreign vacation travel; and 0.2 for food. Using the determinants of price elasticity of demand, explain why each of these commodities would have these coefficients elasticity.
KUESTION TWO A. Empirical estimates suggest the following price elasticity of demand: 0.6 for Coca Cola; 4.0 for foreign vacation travel; and 0.2 for food. Using the determinants of price elasticity of demand, explain why each of these commodities would have these coefficients elasticity.
Chapter5: Elasticity Of Demand And Supply
Section: Chapter Questions
Problem 1.1P: (Calculating Price Elasticity of Demand) Suppose that 50 units of a good are demanded at a price of...
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Transcribed Image Text:QUESTION TWO
A. Empirical estimates suggest the following price elasticity of demand: 0.6 for Coca
Cola; 4.0 for foreign vacation travel; and 0.2 for food. Úsing the determinants of
price elasticity of demand, explain why each of these commodities would have
these coefficients elasticity.
B. Lisa Gee Ghana Ltd., is the main sales agent of Infinix phones in Ghana. The
economist of this enterprise has estimated the demand function for the firm's
products per week to be of the form:
Q = 445 - 2.5P - 81 + 2.5Pr
where; Q is the quantity demanded of Infinix phones, P. is its own-price, Pr is the
price of a related good (Tecno Phones) and I is income.
Giventhat Pi = 10, Pr = 5 and I = 40, use the above information to:
i. Determine the quantity demanded of Infinix phones per week and compute
the own-price elasticity of demand for Infinix phones and interpret your
results.
ii. Based on your answer in (i), what pricing policy would you recommend for
the firm in order to maximize its total revenue?
iii. Calculate the cross-price elasticity of demand between Infinix and Tecno
phones, interpret your results and determine the kind of relationship that
exists between the two.
iv. Compute the income elasticity of demand and determine if Infinix phones are
normal goods or not. Explain your results.
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