The Reliable Aircraft Company manufactures small, pleasure-use aircraft. Based on past experience, sales volume appears to be affected by changes in the price of the planes and by the state of the economy as measured by consumers' disposable personal income. The following data pertaining to Reliable's aircraft sales, selling prices, and consumers' personal income were collected: Year Aircraft Sales Average Price (Dollars) Disposable Constant Income (In constant 2006 dollars, billions) 2006 525 16,800 610 2007 450 8,000 610 2008 400 8,000 570 The arc price elasticity of demand between 2006 and 2007 is: 0.22 0.38 00 -0.38 The arc income elasticity of demand between 2007 and 2008 is: -3.99 0 1.74 3.99 Assume that these estimates are expected to remain stable during 2009. Forecast 2009 sales for Reliable assuming that its aircraft prices remain constant at 2007 levels and that disposable personal income will increase by 7%. Also assume that the arc income elasticity you just computed is the best available estimate of income elasticity. Aircraft Sales 2009 Forecast: Forecast 2009 sales for Reliable given that its aircraft prices will increase by 6% from 2008 levels and that disposable personal income will increase by 7%. Assume that the price and income effects are independent and additive and that the arc income and price elasticities you just computed are the best available estimates of these elasticities to be used in making the forecast. Aircraft Sales 2009 Forecast:
The Reliable Aircraft Company manufactures small, pleasure-use aircraft. Based on past experience, sales volume appears to be affected by changes in the price of the planes and by the state of the economy as measured by consumers' disposable personal income. The following data pertaining to Reliable's aircraft sales, selling prices, and consumers' personal income were collected: Year Aircraft Sales Average Price (Dollars) Disposable Constant Income (In constant 2006 dollars, billions) 2006 525 16,800 610 2007 450 8,000 610 2008 400 8,000 570 The arc price elasticity of demand between 2006 and 2007 is: 0.22 0.38 00 -0.38 The arc income elasticity of demand between 2007 and 2008 is: -3.99 0 1.74 3.99 Assume that these estimates are expected to remain stable during 2009. Forecast 2009 sales for Reliable assuming that its aircraft prices remain constant at 2007 levels and that disposable personal income will increase by 7%. Also assume that the arc income elasticity you just computed is the best available estimate of income elasticity. Aircraft Sales 2009 Forecast: Forecast 2009 sales for Reliable given that its aircraft prices will increase by 6% from 2008 levels and that disposable personal income will increase by 7%. Assume that the price and income effects are independent and additive and that the arc income and price elasticities you just computed are the best available estimates of these elasticities to be used in making the forecast. Aircraft Sales 2009 Forecast:
Chapter1: Making Economics Decisions
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Transcribed Image Text:The Reliable Aircraft Company manufactures small, pleasure-use aircraft. Based on past experience, sales volume appears to be affected by changes
in the price of the planes and by the state of the economy as measured by consumers' disposable personal income. The following data pertaining to
Reliable's aircraft sales, selling prices, and consumers' personal income were collected:
Year Aircraft Sales
Average Price
(Dollars)
Disposable Constant Income
(In constant 2006 dollars, billions)
2006
525
16,800
610
2007
450
8,000
610
2008
400
8,000
570
The arc price elasticity of demand between 2006 and 2007 is:
0.22
0.38
00
-0.38
The arc income elasticity of demand between 2007 and 2008 is:
-3.99
0
1.74
3.99
Assume that these estimates are expected to remain stable during 2009. Forecast 2009 sales for Reliable assuming that its aircraft prices remain
constant at 2007 levels and that disposable personal income will increase by 7%. Also assume that the arc income elasticity you just computed is the
best available estimate of income elasticity.
Aircraft Sales 2009 Forecast:
Forecast 2009 sales for Reliable given that its aircraft prices will increase by 6% from 2008 levels and that disposable personal income will increase by
7%. Assume that the price and income effects are independent and additive and that the arc income and price elasticities you just computed are the
best available estimates of these elasticities to be used in making the forecast.
Aircraft Sales 2009 Forecast:
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