The following quote is from a recent MSN Money article on Clorox’s 2012 4th 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 4th 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?
b. Suppose for the 3rd quarter this challenge did not exist, rather the challenge was one of the data availability. All the manager knows, a few minutes before a quickly called meeting to discuss 3rd quarter results, is that the price of a pack of 35-count Clorox Wipes increased by 12% while revenue from those wipes increased by 5%. Calculate the own-price elasticity of demand for Clorox Wipes in this quarter.
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