Question

You land a marketing job with Canon after graduation– in the digital camera division. After introducing a new digital camera, you estimate that the price-elasticity of demand for the camera equals 2 and the income-elasticity is equal to 0.5. Furthermore, the cross-price elasticity with a similar Kodak camera is equal to 1.25. Using this information, you would conclude that the product is income-:

Answer 1

Answer:

The answer is inelastic.

Explanation:

Since the income-elasticity is 0.5(less than 1), it means the product is income inelastic. Income inelastic means that increase in income of households does not mean there will be an increase in quantity demanded(i.e an increase in income lead to decrease in quantity of Canon demanded).

The cross-price elasticity with Kodak camera is equal to 1.25. This means that Kodak and Canon are substitutes