1- if the price elasticity of demand for the notebook is -.65. Then the demand f

Question

1- if the price elasticity of demand for the notebook is -.65. Then the demand for notebooks can be describe as?

2- Suppose that we have the following sales function: QX = -4Px + 2PY + 0.2I + 0.04A

Px = $ 200, the Price of good X, Py = $140, the price of good Y, I =2,000, income, A = $15,000 advertizing expenditures.
Given above information expected sales are?

3-A four percent change in the price of TV Plasmas causes the quantity demand of TV Plasmas to change by two percent. Therefore the price elasticity of demand for TV Plasmas is?

4-Suppose that the income elasticity of cellular phones is +.89. Then cellular phones can be classified as?

Explanation / Answer

1) Note that the price elasticity of demand for the notebook is -0.65 which implies that the absolute value of demand is less than 1. When demand elasticity is less than 1, it is said to have an inelastic demand. Hence, the demand for notebooks can be describe as an inelastic demand.

2- Fill the values and find the expected sales = QX =  -4*200 + 2*140 + 0.2*2000 + 0.04*15000 = 480 units

3-. Therefore the price elasticity of demand for TV Plasmas ed = % change in Qd/% change in P = 2%/4% = 0.5.

4-Suppose that the income elasticity of cellular phones is +.89. Then cellular phones can be classified as NORMAL goods. This is because celluar phones have positive income elasticity reflecting that an increase in price will increase consumption and quantity demanded. Such goods are called normal goods.

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