Economics: Elasticity Theory – #271


Question: 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 incoMeand 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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