Answer to Question #77713 in Microeconomics for Busayo

Question

The following quote is from a recent MSN Money article on Clorox’s 2012 4* quarter financial
results:

Sales of Clorox cleaning products alone jumped 15% to $425 million and increased income 28%. Household sales surged 7% and profits rose 65% as both prices and demand increased and a germ-averse public stocked up.

Between strains of flu not covered by this year’s flu shot and an absolutely grotesque norovirus import from Australia that's been putting gastrointestinal systems to the test, it's been a tough few weeks fraught with peril and hand washing for the average American.

Suppose an enterprising manager wanted to use changes in the 4* Quarter to calculate the own-price elasticity of demand for Clorox cleaning products. The manager has data on changes in price and changes in quantity sold during the quarter.

a) What would be the main challenge they would face in calculating a reliable estimate of elasticity?

Answer 1

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