​The Welsh Kitchen Design Company sells

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The Welsh Kitchen Design Company sells its deluxe food processor
for £150/unit. Company experience suggests that both price
and consumer incomes affect sales, with an estimated price
elasticity of demand of -3.0, whilst income elasticity is estimated
at 4.0. In 1986 the company sold one million units, whilst total
consumer disposable income was £600 billion. Estimated consumer
disposable income for 1987 is £650 billion.
(i) Assuming price remains the same in 1987, estimate total
sales revenue.
Examination questions and answer notes 339
(ii) If 1988 consumer income is expected to remain constant at
£650 billion, whilst price is expected to fall by £25, estimate
sales revenue in 1988.
(iii) Estimate sales revenue in 1988 if consumer income rises by
10% between 1987/88, whilst price falls by 15%.
(iv) Use the information above to estimate demand as a linear
function of price and income.


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