1. Coefficient of income in a regression of quantity demanded of commodity on price, income, and other variables is 10.
dQ/ dI = 10
a. Compute income elasticity of demand for this commodity at income of $10,000 and sales of 80,000 units.
b. What would be income elasticity of demand if sales increased from 80,000 to 90,000 units and income rose from $10,000 to $11,000? What type of good is this commodity?
2. Researcher estimated that price elasticity of demand for automobiles in United State is - 1.2, while income elasticity of demand is 3.0. Next year, U.S. automakers intend to increase average price of automobiles by 5 percent, and they expect consumers' disposable income to rise by 3 percent.
a. If sales of domestically manufactured automobiles are 8 million this year, how many automobiles do you expect U.S. automakers to sell next year?
b. By how much must domestic automakers increase \price of automobiles if they want to increase sales by 5 percent next year?