Domestic automakers raise the price of automobiles

Reference no: EM1327099

Price Elasticity for automakers

A researcher estimated that the price elasticity of demand for auto mobiles in the united states is -1.2, while the income elasticity of demand is 3.0. Next year, U.S. automakers intend to increase the average price of automobiles by 5 percent, and they expect consumers' disposable income to rise 3 percent.

(a) If sales domestically produced automobiles are 8 million this year, how many automobiles d you expect U.S. automakers to sell next year?

(b) By how much should domestic automakers increase the price of automobiles if they wish to increase sales by 5 percent next year?

Reference no: EM1327099

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