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[Solved] ECO404 Assignment 1 Fall 2021


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ECO404 Assignment 1 Fall 2021

Apple is an American corporation that develops and sells computer electronics, software, personal computers and portable devices internationally. Apple is a leading mobile manufacturer in the world. All the products of Apple use the iOS mobile operating system and are designed by Apple Inc. It has the quality-based products, including many extrafeatures and is well-known for its creativity and smartness. People of all classes prefer to have an IPhone due to its distinguished characteristics. Apple Inc. launched a new mobile in Pakistan in year 2020 with the price of $250. Suppose that there are three classes; namely rich, upper middle and middle income groups. A rich consumer purchases 4 units at this price, upper middle consumer buys 2 units and middle income consumer buys 1 unit of the product. Suppose this firm launches the same mobile product in year 2021 with the price of $500. The demand of the product changes in the way that rich consumer purchases 6 units, upper middle consumer buys just 1 unit and middle income consumer does not buy even a single unit. All this information has been summarized in the given table.
Price of Mobile
Qd (Rich Class)
Qd Upper Middle class
Qd Middle income Group $250 4 2 1
$500 6 1 0

Requirements: Keeping in view the information given in above case:

a) Find out the price elasticity of demand for rich, upper middle and middle income consumersrespectively?

b) Interpret the economic meanings of the calculated elasticity for each income group.?

(Hint: After price increase,nature of product changes for consumers)

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ECO404 Assignment 1 Fall 2021 solution idea:

 

Managerial Economics ECO 404

                                                                       

Assignment No: 1

 

Requirements:    

Keeping in view the information given in above case:

 

a) Find out the price elasticity of demand for rich, upper middle and middle income

consumers respectively?

 

Solution:

Price elasticity of demand Formula:

Price elasticity= % change in quantity demand/ % change in price

%Change in price = P2-P1 x 100

                              = 500-250/250x100

                              = 100%

Price elasticity of demand for rich:

% Change in quantity demand=

                        Q2-Q1/Q1 x 100

                        6-4/4 x 100

                        2/4 x 100

                        50%

            Price elasticity = 50/100

            Price elasticity = 0.5

Price elasticity of demand for upper middle income;

                        0-1/1 x 100

                        -1/1 x 100

                        -100%

            Price elasticity = -100/100

            Price elasticity = -1

 

b) Interpret the economic meanings of the calculated elasticity for each income group?

      Solution:

  • For rich income group % change in quantity is (50%) less than % change in price (100%) so the product is considered to be price inelastic.
  • For upper middle-income group % change in quantity is (50%) less than % change in price (100%) so the product is considered to be price inelastic.
  • For middle income group % change in quantity demand is same as in % change in price so the product is considered to be unitary inelastic.

           

 

Download attachment for ECO404 assignment 1 solution file.

 

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