Eco 550, Assignment 1
Professor: Dr, Guerman Kornilov
January 27, 2014
1. Compute the elasticity for each independent variable. Note: Write down all of your calculations.
According to our Textbooks and given information, When P = 8000, A = 64, PX = 9000, I = 5000, we can use regression equation,
QD = 20000 - 10*8000 + 1500*64 + 5*9000 + 10*5000 = 131,000
Price elasticity = (P/Q)*(dQ/dP)
From regression equation, dQ/dP = -10.
So, price elasticity EP= (P/Q) * (-10) = (-10) * (8000 / 131000) = -0.61
EA = 1500 * 64 / 131000 = 0.73
EPX = 5 * 9000 / 131000 = 0.34
EI = 10* 5000 / 131000 = 0.38
2. Determine the implications for each of the …show more content…
4. Outline the significant factors that could cause changes in supply and demand for the product. Determine the primary manner in which both the short-term and the long-term changes in market conditions could impact the demand for, and the supply, of the product.
As the demand equation points out, demand of the low-calorie food can change due to a change in consumer income, price of competitor product and price of related goods (microwave oven). The change can also come as a result of change in consumer preference (like awareness towards low-calorie food). Supply of the product can change due to change in number of suppliers of the product, technological advances in the production and other factors like change in availability of labor and raw-material which directly affect production costs.
5. Indicate the crucial factors that could cause rightward shifts and leftward shifts of the demand and supply curves.
According to A rightward shift of demand curve could be caused by an increase in consumer income, a decrease in price of complementary product like microwave ovens, an increase in population or increased preference for the product like awareness towards low-calorie food. A leftward shift of demand curve can be caused by a drop in consumer income or recession, increase in price of complementary