Sales of cars declined by 15 percent in a recent recession. During this period the price of cars rose by 6 percent, average income fell by 4 percent and the price of petrol rose by 20 percent. It has been estimated that the PED for cars is -0.8 and THE YED is 1.25.
A. Estimate the effect of the decline in income on car sales?
B. Estimate the effect of the car price rise in sales
C. Estimate the CED between petrol and cars; compare your estimate using simple elasticity and addictive effects with the estimate obtained using a power form of demand equation.
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