Using data on automobile purchases, P. McCarty (REStat 1996) estimated the following elasticities for compact cars sold in the United States. Own elasticity of demand Income Elasticity Cross Price* - 0.87 1.70 .82 Responsiveness of demand for compact cars to changes in the price of other types of car odels, such as luxury cars. a) What is the percent change in quantity demanded for compact cars given a 2 percent decrease in the price of compact cars? b) What is the percent change in demand for compact cars given a 2 percent decrease in the price of other car models? c) What is the percent change in demand for compact cars given a 2 percent decrease in income? d) Is demand for compact cars elastic or inelastic? Explain briefly. e) Would a decrease in the price of compact cars generate more or less revenue from the sale of compact cars? f) Are compact cars a normal or inferior good? Explain briefly.
Using data on automobile purchases, P. McCarty (REStat 1996) estimated the following elasticities for compact cars sold in the United States. Own elasticity of demand Income Elasticity Cross Price* - 0.87 1.70 .82 Responsiveness of demand for compact cars to changes in the price of other types of car odels, such as luxury cars. a) What is the percent change in quantity demanded for compact cars given a 2 percent decrease in the price of compact cars? b) What is the percent change in demand for compact cars given a 2 percent decrease in the price of other car models? c) What is the percent change in demand for compact cars given a 2 percent decrease in income? d) Is demand for compact cars elastic or inelastic? Explain briefly. e) Would a decrease in the price of compact cars generate more or less revenue from the sale of compact cars? f) Are compact cars a normal or inferior good? Explain briefly.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:Using data on automobile purchases, P. McCarty (REStat 1996) estimated the
following elasticities for compact cars sold in the United States.
Own elasticity of demand
Income Elasticity
Cross Price*
- 0.87
1.70
.82
* Responsiveness of demand for compact cars to changes in the price of other types of car
models, such as luxury cars.
а)
What is the percent change in quantity demanded for compact cars given a 2
percent decrease in the price of compact cars?
b)
What is the percent change in demand for compact cars given a 2 percent decrease
in the price of other car models?
c)
What is the percent change in demand for compact cars given a 2 percent decrease
in income?
d)
Is demand for compact cars elastic or inelastic? Explain briefly.
e)
Would a decrease in the price of compact cars generate more or less revenue from
the sale of compact cars?
f)
Are compact cars a normal or inferior good? Explain briefly.
5.
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