Income Elasticity of Demand

a) Determine the income elasticity of demand given that the quantity demanded for
product M is 1000 units at a daily income of Rs. 100/- the daily income declines to Rs.
80/- and the quantity demanded decreases to 700 units.

(Q2−Q1 )/Q1
Edi =
( I 2 −I 1 )/I 1
Edi = (700−1,000) /¿ ¿ = 1.5

Cross Elasticity of Demand

a) Determine the cross elasticity of demand given that the quantity demanded for
product M is 1000 units at a daily income of Rs.100/- and the daily income declines to
Rs. 80/- and the quantity demanded decreases to 700 units.

(Q 2−Q 1 )/Q 1
Edc =
(P2 y−P1 y)/ P1 y
Edp =(1,200−1,000)/¿ ¿ = 0.4

Advertising Elasticity

Determine the advertising elasticity of demand given that, the quantity demanded for
product M is 100000 unit per day at a monthly advertising budget of Rs. 10,000/- and
the monthly advertising budget is slashed to Rs. 5,000/- the quantity demanded will fall
down to Rs.30,000/- unit per day.

(Q 2−Q 1)/Q 1
Edc =
( A2 −A 1)/ A1
Eda = (30,000−10,000)/¿ ¿ = +1.4