The research department of the COLLEGE STUDENT BLUE-JEANS has estimated the inco
ID: 1098036 • Letter: T
Question
The research department of the COLLEGE STUDENT BLUE-JEANS has estimated the income elasticity of demand for blue-jeans of the Gap Corporation to be 2. Further, most economic forecasts predict a 3% increase in incomes for students during the upcoming year. If among the blue-jeans sold to college students last year, 820,000 were of the Gap brand, please estimate the number of additional blue-jeans that Gap expects to sale in the upcoming year. Further, if the Gap Corporation has estimated that, on the average, one sales person is needed for every 800 blue-jeans sold annually, please estimate the number of additional sales persons Gap needs to hire in the upcoming year.
Explanation / Answer
Answer: Income elasticity of demand = Percentage change in the demand/Percentage demand in income
2 = Percentage change in demand/ 3%
Percentage change in demand = 3*2
= 6
Total increase in the demand for blue jeans is 6 %
or 6 % of 820,000
=49,200
Number of sales person reuired = 49,200/800
= 61.5