Question

In my microeconomics class my term paper is to find the elasticity of Budweiser. I need to show "calculations for at least 2 types of elasticity (example price, and income elasticity) This can be done in a graph or math equations etc. All help is very appreciated.

Answer 1

This is a beer company and it has a brand value in the market. Since this is an intoxicant (beer), the use of it (consumption) comes out of the addiction of consumers.

Price elasticity of demand:

Its price elasticity (Pe) is inelastic, because the change in price doesn’t have much effect in quantity demanded.

Example: Price of a bottle of beer increased from $50 to $60 and for than demand decreases from 20 bottles to 18 bottles for a time period.

Therefore, Pe = [(Q2 – Q1) / {(Q1 + Q2) 2}] / [(P2 – P1) / {(P1 + P2) 2}]

                = [(18 – 20) / {(20 + 18) / 2}] / [(60 – 50) / {(50 + 60) / 2}]

                = [- 2 / (38 / 2)] / [10 / (110 / 2)]

                = (- 2 / 19) / (10 / 55)

                = - 0.105 / 0.181

                = - 0.58

Since the elasticity is less than 1, it is price inelastic.

In the graph, although income decreases from $200 to $100 the quantity consumption doesn’t change much (decreases only 20 units to 18 units). Therefore, the gap in the quantity is smaller than the gap in income, indicating income inelastic demand.