2.15
Determine the advertising elasticity of demand.
1.05
What interpretation would you give to the exponent of N?
Increase in 1% in population of 12 year old will increase the
demand of the general cereal’s product by 3.70%.
6. The demand for haddock has been estimated as log Q = a + b log P +
c log I + d log Pm where Q = quantity of haddock sold in New England
P = price per pound of haddock I = a measure of personal income in the
New England region Pm = an index of the price of meat and poultry
If b = −2.174, c = 0.461, and d = 1.909,
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Myisha Coleman
April 22, 2013
Determine the price elasticity of demand.
2.174
Determine the income elasticity of demand.
0.461
Determine the cross price elasticity of demand.
1.909
How would you characterize the demand for haddock?
2.175 the demand is elastic because it is more than 1
0.461=if income increased by1% its effect is minimum.
1.909=if price elasticity is 1.909 there will potentially be an
effect on haddock.
Suppose disposable income is expected to increase by 5 percent next
year.
Assuming all other factors remains constant, forecast the
percentage change in the quantity of haddock demanded next year.
If there is a 5% increase in income there will be a 2.305%
change in quantity demanded
Myisha Coleman
April 22, 2013
7. An estimate of the demand function for household furniture produced
the following results:
F = 0.0036Y1.08R0.16P −0.48
r2 = 0.996
where F = furniture expenditures per household
Y = disposable personal income per household
R = value of private residential construction per household
P = ratio of the furniture price index to the consumer price index
a. Determine the point price and income elasticities for household
furniture.
b. What interpretation would you give to the exponent for R? Why do
you suppose R was included in the equation as a variable?
c. If you were a supplier to the furniture manufacturer, would you have
preferred to see the analysis performed in physical sales units rather than
dollars of revenue? How would this change alter the interpretation of the
price coefficient, presently estimated as −0.48?
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 Summer '12
 Babb
 Price Elasticity, Supply And Demand, Myisha Coleman

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