Given the Following Demand Function:
Q = 2 Determine the Following When P = $2/unit,Y = $8 (A)

question 7

Essay

Given the following demand function:
Q = 2.0 P?^1.33 Y^2.0 A^.50
$$\begin{array} { l l } \text { where } & Q = \text { quantity demanded (thousands of units) } \\& P = \text { price ( } \$ / u n i t ) \\& Y = \text { disposable income per capita (\$ thousands) } \\& A = \text { advertising expenditures ( } \$ \text { thousands) }\end{array}$$ determine the following when P = $2/unit,Y = $8 (a) Frice el asticity of demand
(b) The approximate percentage increase in demand if disposable income percentage increases by $3 \%$ .
(c) The approximate percentage increase in demand if advertising expenditures are increased by 5 percent.

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Definitions:

Autonomous Consumption

The level of consumption that occurs when income is zero, showing the basic level of consumption necessary for survival.

Permanent Income Hypothesis

A theory suggesting that people's consumption decisions are based on their long-term income expectations rather than their current disposable income.

Negative Savings

A situation where spending exceeds income, resulting in a deficit rather than savings.

Price Ceiling

A legally established maximum price that can be charged for a good or service, typically set by government.