1. If You have the following information for your product: %uF0FC The price elas
ID: 1178345 • Letter: 1
Question
1. If You have the following information for your product: %uF0FC The price elasticity of demand is -0.9 %uF0FC The income elasticity of demand is 0.5 %uF0FC The cross price elasticity of demand is 2.0What can you determine about consumer demand for your product from this information
1. If You have the following information for your product: %uF0FC The price elasticity of demand is -0.9 %uF0FC The income elasticity of demand is 0.5 %uF0FC The cross price elasticity of demand is 2.0
What can you determine about consumer demand for your product from this information
Explanation / Answer
Consumer demand is inelastic, which means if price increases revenue will go up, and if price decreases it will go down.
It is a normal good since income elasticity is positive. In other words, as income goes up, demand for the product will go up. It is a necessity rather than a luxury since income elasticity is <1 rather than >1.
It is a substitute for whatever good the cross price elasticity is positive in relation to. A positive cross price elasticity of demand means if the price of the substitute good goes up, the demand for this good will also go up.
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