Posted by Monica on Tuesday, May 15, 2007 at 1:30pm.
Suppose that during a given year: (1) the price of TV sets increases by 4% in Japan, (2) the dollar depreciates by 5% with respect to the yen, (3) the consumers’ incomes in the U.S. increase by 3%, (4) the price of elasticity of demand for imported TV sets in the U.S. is -1.5, and (5) consumers’ income elasticity of demand for TV sets in the U.S. is 2.
A)If the price of the imported TV set was $300 in the U.S. at the beginning of the year, approximately how much would you expect the price of the same imported TV set to be in the U.S. at the end of the year?
B)By how much would the quantity demanded of imported TV sets in the United States change as a result of the change in price only?
C)By how much would the demand for imported TV sets in the U.S. change as a result of the increase in consumers’ income alone?
D)By how much would the demand for imported TV sets in the U.S. change as a result of both the change in price and incomes?
To properly answer these questions, you would need to know something about the elasticity of supply. However, if you can assume the elasticity of supply for TV sets in the US is highly elastic, then the problems can be easily solved.
That said, take a shot. What do you think the answers are?
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