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Multiplicative Demand Equation

The document presents a multiplicative demand equation where quantity demanded (Q) is determined by price (P), disposable income per capita (Y), and advertising expenditures (A). It asks the reader to determine: (a) the price elasticity of demand, (b) the approximate percentage increase in demand if income increases 2%, and (c) the approximate percentage increase in demand if advertising increases 3%, given the values P=$2, Y=$8,000, and A=$25,000.

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385 views1 page

Multiplicative Demand Equation

The document presents a multiplicative demand equation where quantity demanded (Q) is determined by price (P), disposable income per capita (Y), and advertising expenditures (A). It asks the reader to determine: (a) the price elasticity of demand, (b) the approximate percentage increase in demand if income increases 2%, and (c) the approximate percentage increase in demand if advertising increases 3%, given the values P=$2, Y=$8,000, and A=$25,000.

Uploaded by

vivek1119
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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MULTIPLICATIVE DEMAND EQUATION

Given the following demand function:




Q = 2.0 P
1.25
Y
1.5
A
0.5


where Q = quantity demanded (thousands of units)
P = price ($/unit)
Y = disposable income per capita ($ thousands)
A = advertising expenditures ($ thousands)

determine the following when P = $2/unit, Y = $8 (i.e.,
$8000), and A = $25 (i.e., $25,000)

(a) Price elasticity of demand
(b) The approximate percentage increase in demand if
disposable income percentage increases by 2%.
(c) The approximate percentage increase in demand if
advertising expenditures are increased by 3 percent.

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