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Suppose that the current market price of VCRs is $300

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Suppose that the current market price of VCRs is $300, that average consumer disposable income is $30,000, and that the price of DVD players (a substitute for VCRs) is $500. Under these conditions annual U.S. 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 this information to predict the annual number of VCRs sold under the following conditions;(1) Increasing competition from Asia causes VCR prices to fall to $270 with income and the price of DVDs is unchanged.

 

Paper#21404 | Written in 18-Jul-2015

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