General Elasticity Problems
A number of empirical studies of automobile demand have been made yielding the following estimates
|
Study |
Income Elasticity |
Price Elasticity |
|
Chow |
3 |
-1.2 |
|
Alkinson |
2.5 |
-1.4 |
|
Roos and Von Szeliski |
2.5 |
-1.5 |
|
Suits (as reworked) |
3.9 |
-1.2 |
Assume that income and prices effects on automobile sales are independent and additive. Assume also that the auto companies intend to increase the average price of an automobile by 6 hours in the next year and the next year’s disposable personal income is expected to be4% higher than this year’s. If this year’s automobile sales were 11 million units, how many would you expect to be sold under each pair of price and income demand elasticity estimates?
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