Curve (1998)
Short run and long run elasticity of demand?
http://img92.imageshack.us/my.php?image=columnfi4.jpg
The table in the link shows retail price and sales for instant coffe and roasted coffe for 1997 and 1998.
A: using the data alone, estimate the short run price elasticity of demand for a roasted coffe. Derive A linear demand curve for roasted coffe.
B: now estimate the short run price elasticity of demand for instant coffee. Derive a linear demand curve for instant coffee.
C: Which coffee has the higher short run price elasticity of demand? Why do u think this is the case?
Year… Qi…. Pi…. Qr…. Pr
1997.. 150.. 810… 110… 600
1998… 45.. 880… 125… 540
Linear demand will be Q=a+bP
B:
For “instant”:
150=a+810b
45=a+880b
After solving this system you will get:
a=1365
b= -1.5
Qi= 1365 -1.5Pi
Ei=PδQ / QδP = -1.5Pi/Qi
Ei(1997) = – 1.5*810/150 = -8.1
Ei(1998) = – 1.5*880/45 = -29.33
A:
Same way for “roasted”:
110=a+600b
125=a+540b
Qr=260 -0.25Pr
Er=PδQ / QδP = -0.25Pr/Qr
Er(1997) = – 0.25*600/110 = -1.364
Er(1998) = – 0.25*540/125 = -1.08
C:
Higher elasticity of demand has “instant” coffee (it currently is at more elastic segment). (due to higher availability of substitutes ?)
P.S. Actually inflation, income effect, advertisement, preference changes, market dynamics should be considered too in deriving demand between these years.
Curve – Toni Halliday interview at much music canada 1998
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CMJ New Music Monthly Vol # 55 March 1998
Track Duration Listeners 1 Ben Folds Five - Smoke (Live) 4:53 841 2 Curve - Coming Up Roses 4:31 10,268 3 16 Horsepower - For Heaven's Sake 4:54 16,843 4 Derailers - Just One More Time 2:50 235 5 The Toasters - Don't Let the Bastards Grind You Down 2:48 34,551 6 Black Grape - Get Higher 5:04 6,437 7 Rammstein - Du hast 3:54 435,477 8... |