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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
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.