The demand equation for a firm’s product is given by the equation ln Q = 100 − 0.25 ln P − 0.5 ln M + 0.5 ln A + 10 ln PY, where Q = quantity, P = price, M = income, A = advertising expenditures, and PY = price of a related good. Based on this demand equation, this good is:

Answer

a. inferior.

b. normal.

c. a necessity.

d. a luxury.

e. None of the above.

1. Suppose Qxd = 10,000 − 2Px + 3 Py − 4.5M , where Px = $100, Py = $50, and M = $2,000. What is the price elasticity of demand?

Answer

a. −2.34

b. −0.78

c. −0.21

d. −1.21

e. None of the above.

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