3. The empirical demand function for good X is estimated in log-linear form as ln Q = 11.74209 - 1.65 ln P + 0.8 ln M - 2.5 ln PY where Q is the estimated number of units of good X demanded, P is the price of X, M is income, and PY is the price of related good Y. (All parameter estimates are significantly different from 0 at the 5 percent level.)
a. Is X a normal or an inferior good? Explain.
b. Are X and Y substitutes or complements? Explain.
c. Express the empirical demand function in the alternative (nonlogarithmic) form: Q=_______.
d. At P = 50, M = 36,000, and PY = 25, what are the estimated price, income, and cross-price elasticities? What is the predicted number of units of good X demanded?
3. The empirical demand function for good X is estimated in log-linear form as ln Q = 11.74209 - 1.65 ln P + 0.8 ln M - 2.5 ln PY where Q is the estimated number of units of good X demanded, P is the price of X, M is income, and PY is the price of related good Y. (All parameter estimates are significantly different from 0 at the 5 percent level.)
a. Is X a normal or an inferior good? Explain.
b. Are X and Y substitutes or complements? Explain.
c. Express the empirical demand function in the alternative (nonlogarithmic) form: Q=_______.
d. At P = 50, M = 36,000, and PY = 25, what are the estimated price, income, and cross-price elasticities? What is the predicted number of units of good X demanded?
Related textbook solutions
Related questions
The generalized demand and supply functions for good X are
Qd = 10 -2Px - 4PY + M Qs = 10 + 2PX
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Where: QD = quantity demanded of good X PX = price of good X M = consumer income PY = price of good Y |
QS = quantity supplied of good X PX = price of good X
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A. Are good X and good Y substitutes or complements? Why?
B. Is good X a normal good or an inferior good? Why?
C. What is the demand function when PY = $4 and M = $600?
d. Use the demand function you found in part c. and solve for the equilibrium price (Po) and the equilibrium quantity (Qo).
e. Find the inverse demand function and the inverse supply function.
f. Sketch this market.
