In this problem, demonstrate your knowledge of percentage rates of change of an entire demand function (HINT: %$\Delta$Q = E_P . %$\Delta$P + E_Y . %$\Delta$Y). You have found that the price elasticity of motor control devices at Allen-Bradley Corporation is -2, and that the income elasticity is a +1.5. You have been asked to predict sales of these devices for one year into the future. Economists from the Conference Board predict that income will be rising 3% over the next year, and AB's management is planning to raise prices 2%. You expect that the number of AB motor control devices sold in one year will: A) fall .5%. B) not change. C) rise 1%. D) rise 2%. E) rise .5%.

Question

Quizplus · Accepted Answer

The percentage change in quantity demanded (%ΔQ) is calculated using the formula: %ΔQ = E_P * %ΔP + E_Y * %ΔY. Substituting the given values: %ΔQ = (-2) * (2%) + (1.5) * (3%) = -4% + 4.5% = 0.5%. Thus, the quantity demanded is expected to rise by 0.5%.

In This Problem, Demonstrate Your Knowledge of Percentage Rates of Change