Business, 05.03.2020 08:47, tannercarr3441
Suppose that the current market price of VCRs is $300, that the average consumer disposable income is $30,000, and that the price of DVDs (a substitute for VCRs) is $500. Under these conditions, annual US demand for VCRs is 5 million per year. Statistical studies have shown that for VCRs the own-price elasticity of demand is -1.3. The income elasticity of demand for VCRs is 1.7. The cross-price elasticity of demand for VCRs with respect to DVDs is 0.8.
Use the following information to predict the annual number of VCRs sold under the following conditions:
1) Increasing competition from Asia causes VCR prices to fall by 10% with income and the price of DVDs is unchanged.
2) Income tax reductions raise average disposable personal income to $31,500 with prices unchanged.
3) An inventor in Menlo Park invents a cheaper way to produce VCRs and income unchanged.
4) All of the events described in parts 1-3 occur simultaneously.
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