Calculate the elasticity for each variable and briefly comment on what

Calculate the elasticity for each variable and briefly comment on what information this gives you in each case.

What will be an ideal response?

ANSWER

Based on the above figures, Q = 2,000
(Own) Price elasticity = -10(1,000/2,000 ) = -5. Demand is elastic at this price.
Advertising elasticity = 5(40/2,000 ) = 0.1. A 1% increase in advertising expenditure will lead to a 0.1% increase in sales.
Cross-price elasticity = 4(800/2,000 ) = 1.6. Because the cross-price elasticity is positive, the goods are considered substitutes. A 1% increase in the competitor’s price is expected to produce a 1.6% increase in the firm’s sales.
Income elasticity = 0.05(4,000/2,000 ) = 0.1. The good is most likely a normal good because the income elasticity is greater than zero and also a necessity because the income elasticity is less than one. This good is not likely to be particularly responsive to income changes.