The respective demands for margarine (marg) and for meals away from home (mah) in the UK during the period 1920-1937, as functions of personal income r, were estimated to be Dmarg = Ar-0.165 and Dmah = Br2.39, for suitable constants A and B. Find and interpret the (Engel) elasticities of Dmarg and Dmah with respect to r.
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- interpret the relationship of both elasticities from each otherSuppose that when income decreases by 4%, the quantity of margarine demanded rises by 1%. Knowingthis, the income elasticity (EI) for margarine is(A) EI = .25(B) EI = -1/4(C) EI = -4(D) EI = -3Exercise : Following an increase in it's price, from 10$ to 12$, the demand for a good falls from 10500 to8100 units.What elasticity of demand would you estimate from these data? Calculate its value, first by using the general formula (for discrete changes), then by assuming a constantconstant elasticity of demand (log formula).Calculate the demand for p=9 (note q9 the quantity for p=9), using the general formula then in log of the elasticity calculated in Now, Knowing the value of the direct price elasticity of demand calculated previously, assuming constant costs andcosts and rivals not responding to your price cut, would you have recommended the price cut from 10 to 9?price cut from 10 to 9 ?
- These questions require application of economic theory relating to elasticity of demand andsupply. All calculations must be shown in full. Answer ALL the questions.Q.3.1 A store that sells maize meal discovers that when the price of 1kg maize meal IsR24 per kilogram, the quantity demanded is 306 kgs per week. When the pricedecreases to R21 per kg, then the sales increase to 340 kgs per week. Use thisinformation to answer questions Q.3.1.1 and Q.3.1.2 below.Q.3.1.1 Determine the price elasticity of maize meal using the Arc method. (5)Q.3.1.2 Discuss the relationship between the price elasticity of maize mealand the total revenue the store received from the sales. Advise thestore on an appropriate pricing strategy.(7)Q.3.2 The store selling maize meal makes a further discovery, when the price of ricechanges from R30 per kg to R26 per kg, then the quantity of rice demandeddecreases from 1360 kg per month to 1238 kg per month. Use this informationto answer Q.3.2.1 and Q.3.2.2 below.Q.3.2.1…A recent report by the Centers for Disease Control looked at the relationship between the price of beer and the incidence of new cases of STD's. The report concluded that a beer tax increase of $.20 could reduce overall STD rates by 8.9%. Assume that a six pack cost $5.90 before the price increase. Calculate the cross price elasticity between beer and STD's. What is the sign of this cross-price elasticity? According to your estimate, are beer and STD's compliments or substitutes? Does your answer make sense? Explain.Question 9 Suppose that the average income of a consumer named Wian decrease from R18000 to R12000. As a result, the quantity of product A demanded by Wian increases from 200 units to 280 units. Use the ARC (midpoint) formula to calculate and classify the income elasticity of demand for product A. Based on your answer in 9.1, name and define the type of product. 9.1. 9.2.
- The cross price elasticity between two goods is +0.9, the initial prices of the two goods are P1 = $2 and P2 = $3, the initial quantities of the goods are Q1 = 10,000 and Q2=8000. Calculate the new amount of Q2 demanded if P1 increases to $2.75 Type your numeric answer and submit 21333 XThe quantity demanded each week x (in units of a hundred) of the Mikado digital camera is related to the unit price p (in dollars) by the demand equation X = V 400 - 5p (0 sps 80). (a) Is the demand elastic or inelastic when p = 40? elastic O inelastic When p = 70? elastic inelastic (b) When is the demand unitary? p = (c) If the unit price is lowered slightly from $70, will the revenue increase or decrease? increase decrease (d) If the unit price is increased slightly from $40, will the revenue increase or decrease? increase decrease10. Exercise 3.10 The Reliable Aircraft Company manufactures small, pleasure-use aircraft. Based on past experience, sales volume appears to be affected by changes in the price of the planes and by the state of the economy as measured by consumers' disposable personal income. The following data pertaining to Reliable's aircraft sales, selling prices, and consumers' personal income were collected: Average Price (Dollars) Disposable Constant Income (In constant 2006 dollars, billions) Year Aircraft Sales 2006 525 17,600 610 2007 450 8,000 610 2008 400 8,000 570
- If the cross elasticity of demand for two goods, A and B, is -5,0, then this implies that these goods must beExplain the substantive differences between an elastic functions, a unit elastic function and an inelastic function?The cross price elasticity of demand for fuel with respect to the price of transport (e.g., automobile travelincluding insurance, etc.) has been estimated to be -0.48. If the price of transport falls by 10 percent in aperiod, how will that affect the demand for fuel in that period, all other things unchanged?