Analyzing Elasticities and Their Impact on Consumption

Analyzing Elasticities and Their Impact on Consumption In this analysis, we will examine the elasticities of demand for good X, including own price elasticity, income elasticity, advertising elasticity, and cross-price elasticity with good Y. We will then determine how changes in various factors affect the consumption of good X. Elasticities Data - Own Price Elasticity of Demand (PED) = 5 - Income Elasticity of Demand = 1 - Advertising Elasticity of Demand = 4 - Cross-Price Elasticity of Demand with Good Y = 3 Impact on Consumption 1. Price of Good X Decreases by 6% - Using own price elasticity: PED = %ΔQd / %ΔP - Given PED = 5 and %ΔP = -6% - %ΔQd = PED * %ΔP = 5 * (-6%) = -30% - The consumption of good X will decrease by 30%. 2. Price of Good Y Increases by 7% - Using cross-price elasticity: XED = %ΔQd_X / %ΔP_Y - Given XED = 3 and %ΔP_Y = 7% - %ΔQd_X = XED * %ΔP_Y = 3 * 7% = 21% - The consumption of good X will increase by 21%. 3. Advertising Decreases by 2% - Using advertising elasticity: AED = %ΔQd / %ΔA - Given AED = 4 and %ΔA = -2% - %ΔQd = AED * %ΔA = 4 * (-2%) = -8% - The consumption of good X will decrease by 8%. 4. Income Increases by 3% - Using income elasticity: YED = %ΔQd / %ΔY - Given YED = 1 and %ΔY = 3% - %ΔQd = YED * %ΔY = 1 * 3% = 3% - The consumption of good X will increase by 3%. Conclusion The elasticities of demand provide valuable insights into how changes in prices, income, advertising, and cross-prices affect the consumption of a good. By understanding these elasticities, businesses can predict and adapt to shifts in consumer behavior, leading to more effective pricing and marketing strategies for optimizing their market performance and profitability.  

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