# Calculation on Price Elasticity of Demand problem Need Advices .

• DreamBell
So for number 2 you just plug in the new income value, and for number 3 you just plug in the new advertising expenditure value. That should do it.
DreamBell
Calculation on Price Elasticity of Demand problem ... Need Advices ...

Give following demand function:

Q = 2.0 P^-1.33Y^2.0A^0.50

Q = Quantity demanded (Thousads of units)
P = Prices ($/Unit) Y = Disposable income per capita ($ thousands)
A = Advertising expenditures ($thousands) When P =$2/unit, Y = $8 (i.e.$8000), and A = $25 (i.e.$25000)...

1. Price Elasticity of demand
2. The approximate percentage increase in demand if disposable income percentage increased by 3%.
3. The approximate percentage increase in demand if Advertising Expenditure are increased by 5%.

Well, i really not so understand how to resolved the ab0ve question. Is that i need to draft a graft in order to get the answer ?

Hopefully hav some one professional here to guide me on this kind of question .

regards,
Dream Bell

I have no idea about the economy part of the question, but you will not probably get much help, as your post is ambiguous and not clear. I can only guess that equation for Q is given, and points 1-3 are things that you are expected to calculate.

If so, 2 & 3 looks like simple plug and chug.

DreamBell said:
Give following demand function:

Q = 2.0 P^-1.33Y^2.0A^0.50

Q = Quantity demanded (Thousads of units)
P = Prices ($/Unit) Y = Disposable income per capita ($ thousands)
A = Advertising expenditures ($thousands) When P =$2/unit, Y = $8 (i.e.$8000), and A = $25 (i.e.$25000)...

1. Price Elasticity of demand
2. The approximate percentage increase in demand if disposable income percentage increased by 3%.
3. The approximate percentage increase in demand if Advertising Expenditure are increased by 5%.

Well, i really not so understand how to resolved the ab0ve question. Is that i need to draft a graft in order to get the answer ?

Hopefully hav some one professional here to guide me on this kind of question .

regards,
Dream Bell

For (1) use the definition of price elasticity. This should involve a partial derivative. For 2 and 3 formula use the definition of percent change. (Y2-y1)/Y1*100%. Less formula (for example in 2) you could simply replace Y by 1.03Y and see how this effects Q.

DreamBell said:
Give following demand function:

Q = 2.0 P^-1.33Y^2.0A^0.50

Q = Quantity demanded (Thousads of units)
P = Prices ($/Unit) Y = Disposable income per capita ($ thousands)
A = Advertising expenditures ($thousands) When P =$2/unit, Y = $8 (i.e.$8000), and A = $25 (i.e.$25000)...

1. Price Elasticity of demand
2. The approximate percentage increase in demand if disposable income percentage increased by 3%.
3. The approximate percentage increase in demand if Advertising Expenditure are increased by 5%.

Well, i really not so understand how to resolved the ab0ve question. Is that i need to draft a graft in order to get the answer ?

Hopefully hav some one professional here to guide me on this kind of question .

regards,
Dream Bell

This is almost identical to your previous question, but the derivative is just a little more complicated. Still uses the same rule, though.

For number 1, the equation for price elasticity of demand is Ep(Q) = Q'(P) * P/Q.

Try to solve for Q'(P) on your own using the formula I gave you in your other post (given Ax^B, d(x) = A*B*x^B-1, and you get to hold Y and A constant when taking derivative with respect to P).

From there, you just plug price in for P, and solve for Q given the values in the problem, which you plug into the denominator, and multiply by the derivative with respect to P. This will give you a number between 0 and infinity (typically between 0 and 2), which is the price elasticity of demand.

For number 2, you first need to find the income elasticity of demand. This is Ey(Q) = Q'(Y) * Y/Q, and is found the exact same way as price elasticity, just w.r.t. a different variable. Multiply the result by 3 to get the percent change in demand that follows a 3% change in income.

For number 3, you are finding the advertising elasticity of demand. This is Ea(Q) = Q'(A) * A/Q. See the trend here? Multiply that result by 5 to get the change after a 5% change in advertising expenditures. I'm sorry if this isn't very clear, but hopefully it helps.

Good luck.

talk2glenn said:
For number 2, you first need to find the income elasticity of demand. This is Ey(Q) = Q'(Y) * Y/Q, and is found the exact same way as price elasticity, just w.r.t. a different variable. Multiply the result by 3 to get the percent change in demand that follows a 3% change in income.

For number 3, you are finding the advertising elasticity of demand. This is Ea(Q) = Q'(A) * A/Q. See the trend here? Multiply that result by 5 to get the change after a 5% change in advertising expenditures. I'm sorry if this isn't very clear, but hopefully it helps.

Good luck.

Ah, I missed the word approximate.

## What is price elasticity of demand?

Price elasticity of demand is a measure of the responsiveness of the quantity of a product or service demanded to changes in its price. It indicates how sensitive consumers are to changes in price and is calculated by dividing the percentage change in quantity demanded by the percentage change in price.

## Why is it important to calculate price elasticity of demand?

Calculating price elasticity of demand is important because it helps businesses and policymakers make informed decisions about pricing strategies. It can also provide insights into consumer behavior and market trends.

## How do you calculate price elasticity of demand?

Price elasticity of demand is calculated by dividing the percentage change in quantity demanded by the percentage change in price. The formula is: (Q2-Q1)/(Q2+Q1)/2 divided by (P2-P1)/(P2+P1)/2, where Q is the quantity demanded and P is the price.

## What is a "perfectly elastic" demand?

A perfectly elastic demand means that the quantity demanded is extremely sensitive to changes in price, resulting in a demand curve that is horizontal. This means that any increase or decrease in price will result in an infinite increase or decrease in quantity demanded.

## What factors can influence price elasticity of demand?

There are several factors that can influence price elasticity of demand, including the availability of substitutes, the necessity of the product, the proportion of income spent on the product, and the time period in which the price change occurs. Generally, products with more substitutes, considered non-essential, and with a longer time period for consumers to adjust tend to have a higher price elasticity of demand.

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