Econ Paper #1

Topics: Supply and demand, Consumer theory, Elasticity Pages: 2 (1103 words) Published: November 4, 2014

Demand Estimation
Econ 550
Strayer University
QD = - 5200 - 42P + 20PX + 5.2I + .20A + .25M
(2.002) (17.5) (6.2) (2.5) (0.09) (0.21)
Qd= -5200 – 42(500) + 20(600) + 5.2(5,500) + .20(10,000) + .25(5,000) Qd= -5,200 – 21,000 + 12,000 + 28,600 + 2,000 + 1,250 = 17,650 It is a common rule, when the prices of a product increase the demand of that same product decreases. In the particular case the price of the product increases, the demand for the frozen microwaveable food will decrease as well, as if the price of the microwaveable food decreases the demand for them will increase. The calculation shows that the price of the product elasticity= -42(500/17,650)= -1.19. The price of the microwaveable food product is elastic, meaning that the price of the product will affect the demand. The calculation display that the cross elasticity= 20(600/17,650) = .68. The cross elasticity, or the price of the leading competitive product, is positive, suggesting that they are extra products. Since the elasticity is not greater than one, which proposes that they are not necessarily good substitutes and the competitor’s price has little impact to the product sales. Per capita Income elasticity= 5.2(5,500/17,650) = 1.62. The product is income elastic. This would indicate that the product is a luxury product and will be responsive to income fluctuations. Advertising elasticity= .20(10,000/17,650) = .11. The product is inelastic with respect to advertising. An increase in advertising will have a very small effect on product sales. For instance, if we increased advertising by 10%, we would only see approximately a 1.2% increase in product sales. =-5200-42*(500) +20*(600) +5.2*(5500) +0.2*(11000) +0.25*(5000) = 17850 Number of Microwaves sold elasticity= .25(5,000/17,650) = .07. The product is inelastic in regards to the number of microwaves sold. The product sales will be relatively the same regardless if the number of microwaves sold changes. After thoroughly...
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