The demand function for good X is ln QXd = a + b ln PX + c ln M + e, where Px is the price of good X and M is income. Least squares regression reveals that:

a= 7.42 b= -2.18 c= 0.34

a. If M = 55,000 and Px = 4.39, compute the own price elasticity of demand based on these estimates. Determine whether demand is elastic or inelastic.

Own price elasticity of demand: ?

b. If M = 55,000 and Px = 4.39, compute the income elasticity of demand based on these estimates. Determine whether X is a normal or inferior good.

Income elasticity of demand: ?

#### Top Answer

Dear Student Please find... View the full answer