7. Demand for a product (x) is estimated as:

Qx = 1200 +- .8Px + 1.2Ps - .6Pc + 1.2Y +.005A

Where Px is the price of good X, Ps is price of the substitute for good X, Pc is the price of the complement for X, Y is the GDP, and A is the advertising spent on sales promotion for X. All the variables are in natural logarithm and all the coefficients are statistically significant. At the current time, X has annual sales of 6800 units at an average price of $120. The substitute is selling for $145. It is expected that the firm producing X to raise the price of X by 5% for the year 2011. The price of substitute good is expected to rise by 2% and the GDP is expected to grow by 4.2%. The firm will increase advertising on X by 10%.

a. With respect to price, is X a luxury or necessity good?___________________

b. With respect to income, is X a normal or necessity good?___________________

c. Estimate the quantity demanded for X for the year 2011. ___________________

d. How many units of X is expected to be demanded during 2011? _______________

Qx = 1200 +- .8Px + 1.2Ps - .6Pc + 1.2Y +.005A

Where Px is the price of good X, Ps is price of the substitute for good X, Pc is the price of the complement for X, Y is the GDP, and A is the advertising spent on sales promotion for X. All the variables are in natural logarithm and all the coefficients are statistically significant. At the current time, X has annual sales of 6800 units at an average price of $120. The substitute is selling for $145. It is expected that the firm producing X to raise the price of X by 5% for the year 2011. The price of substitute good is expected to rise by 2% and the GDP is expected to grow by 4.2%. The firm will increase advertising on X by 10%.

a. With respect to price, is X a luxury or necessity good?___________________

b. With respect to income, is X a normal or necessity good?___________________

c. Estimate the quantity demanded for X for the year 2011. ___________________

d. How many units of X is expected to be demanded during 2011? _______________

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