Given the following demand function: Q = 2.0 P?1.33 Y2.0 A.50 where Q = quantity demanded (thousands of units) P = price ($/unit) Y = disposable income per capita ($ thousands) A = advertising expenditures ($ thousands)
Determine the following when P = $2/unit, Y = $8 (i.e., $8000), and A = $25 (i.e., $25,000).
a. Price elasticity of demand.
b. The approximate percentage increase in quantity demanded if disposable income percentage increases by 3%.
c. The approximate percentage increase in quantity demanded if advertising expenditures are increased by 5 percent.