ASSIGNMENT CASE
Pakistan is among those countries that imports used as well as new brand vehicles from other countries like Japan and UK etc. Recently Government of Pakistan increased custom duties up to 30% on imported cars to reduce the import bill which has crossed 53 billion dollars. According to the chairman of All Pakistan Motor Dealers Association (APMDA), it is possible for government to reduce some import of new vehicles but it will not be much effective regarding revenue collection because Pakistan hardly imports 1000 new cars. This imposition of import duties will not only impact the importers but also the local producers. Local producers can increase their supply to substitute the consumers’ demand for imported vehicles. As vehicles are considered luxury items so import duties will impact massively.
Suppose that the local automobile industry estimated the following regression of the demand for automobiles.
QX = 100,000 - 100PX + 50I + 30PY - 1000PS +3A
Where QX = Quantity demanded of local automobiles X in Pakistan per year
PX = price of automobiles X, in dollars per unit
I = personal disposable income in dollars
PY = price of the competitive brand of automobile in dollars per unit Ps = price of petrol, in cents per gallon
A = advertising expenditures for Automobile Brand X, in dollars per year
Suppose also that this year, PX = $ 9000, I = $10,000, PY = $ 8000, PS=0.80,and A = $ 200,000.
ASSIGNMENT CASE requirement
- Calculate the Price Elasticity of Demand (PED) for local automobile “X”
- Calculate Income Elasticity of Demand (YED)
- Calculate Cross Elasticity of Demand (XED) for local automobile “X” w.r.t “Y” competitive brand
- Calculate Cross Elasticity of Demand (XED) for local automobile “X” w.r.t “Ps” price of Petrol.
- Calculate Advertising Elasticity of Demand.
(Marking scheme: 03+03+03+03+03)
ASSIGNMENT IMPORTANT INSTRUCTION
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