Demand Estimation Assignment Example | Topics and Well Written Essays - 1750 words

Demand Estimation - Assignment Example Such a product according to economic theory is said to exhibit somewhat elastic demand relative to that of similar products in the market (Graves, & Sexton, 2009). Consequently, the owner of the low-calorie, frozen microwavable food product may need to worry less about rivals in the market since the pricing strategies have a negligible impact on his products. The income elasticity is estimated at 1.62. Such a result is an indication that a 1 percent positive change in the average incomes of the consumers of the product would lead to 1.62 percent increase in the quantity demanded. Theorists argue that such a degree of responsiveness due to changes in consumer income is elastic (Saez, Slemrod, & Giertz, 2012). In line with this, the firm can take the step increasing the price of the commodity if the incomes of the consumers are increased. The elasticity of advertisement is estimated at 0.1 implying that a unit increase in the funds spent on advertisement results to 0.11 increase in the quantity demanded. The result that the degree of responsiveness of the quantity demanded to changes in the intensity of the advertisement is relatively elastic. As such, increases in the level of advertisement do not justify increases in prices by the firm since it is possible that such price have the potential to scare away the consumers (Graves, & Sexton, 2009). In relation to the microwave ovens in the region, the elasticity is estimated at 0.07. Despite the food product being a complement to the microwave oven, a 1 percent elevation in the quantity of ovens in the region only increases the quantity of the food product by merely 0.07 percent. Concerning this, the degree of responsiveness of the quantity needed in relation to variations in the price of the oven is inelastic. The management is better off ignoring the effect of the changes in the price of the ovens when strategizing on