3.4 Sales of cars declined by 15 per cent in a recent recession. During this period...

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3.4 Sales of cars declined by 15 per cent in a recent recession. During this period the price of cars rose by 6 per cent, average income fell by 4 per cent and the price of petrol rose by 20 per cent. It has been estimated that the PED for cars is - 0.8 and the YED is 1.25. a. Estimate the effect of the decline in income on car sales. b. Estimate the effect of the car price rise on sales. c. Estimate the CED between petrol and cars; compare your estimate using simple elasticities and additive effects with the estimate obtained using a power form of demand equation. 3.4 Sales of cars declined by 15 per cent in a recent recession. During this period the price of cars rose by 6 per cent, average income fell by 4 per cent and the price of petrol rose by 20 per cent. It has been estimated that the PED for cars is - 0.8 and the YED is 1.25. a. Estimate the effect of the decline in income on car sales. b. Estimate the effect of the car price rise on sales. c. Estimate the CED between petrol and cars; compare your estimate using simple elasticities and additive effects with the estimate obtained using a power form of demand equation.

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Estimating the effects on car sales a Income decline Income elasticity YED 125 Income change 4 negat... View the full answer