The demand equation for a firm’s product has been estimated as Ln Qx = 7.3 – 2 Ln Px + 0.5 Ln I + 0.25 Ln Py - 1.5 Ln Pz, where Qx represents unit sales of brand X, Px is the price of brand X, I is per-capita income, Py is the price of brand Y, and Pz is the price of brand Z. (A)Write this demand equation in its multiplicative form. (B) What is the price elasticity of demand for brand X? is demand price elastic or inelastic? (C)What is the income elasticity of demand for brand X? What type of good is brand X? (D)What is the cross-price elasticity of demand for brand X in relation to the price of brand Y? What is the relationship between brand X and brand Y? (E) What is the cross-price elasticity of demand for brand X in relation to the price of brand Z? What is the relationship between brand X and brand Z? (F) What effect will an increase in Px by 10% have on the firm’s total revenues? (G)What is the total effect will an increase in Px by 10%, a decrease in I by 3%, an increase inPy by 5%, and a decrease in Pz by 3% on the demand for the firm’s product?
The
Ln Qx = 7.3 – 2 Ln Px + 0.5 Ln I + 0.25 Ln Py - 1.5 Ln Pz,
where Qx represents unit sales of brand X, Px is the
(A)Write this demand equation in its multiplicative form.
(B) What is the price
(C)What is the income elasticity of demand for brand X? What type of good is brand X?
(D)What is the cross-price elasticity of demand for brand X in relation to the price of brand Y? What is the relationship between brand X and brand Y?
(E) What is the cross-price elasticity of demand for brand X in relation to the price of brand Z? What is the relationship between brand X and brand Z?
(F) What effect will an increase in Px by 10% have on the firm’s total revenues?
(G)What is the total effect will an increase in Px by 10%, a decrease in I by 3%, an increase inPy by 5%, and a decrease in Pz by 3% on the demand for the firm’s product?
The price of a good, the per capita income, and the relative price of goods are determinants that affected the demand for a good. The demand function shows the relationship between quantity demanded with its determinants.
The negative coefficient of any determinant shows a negative relationship. The positive coefficient shows a positive relationship.
There is a negative relationship between the quantity demanded of good X and its own price. There is a positive relationship between the quantity demanded of good X and per capita income.
There is a positive relationship between the quantity demanded of good X and the price of the good Y. There is a negative relationship between the quantity demanded of good X and the price of a good Z.
A) Demand of good X shows how willing and able people to purchase good X. In the multiplicative form, the natural log is removed.
Qx = 7.3 - Px2 + I0.5 + Py0.25 - Pz1.5
The degree of each variable is considered as its elasticity.
B) Price elasticity of demand shows how much a quantity demanded of good X changes when the price of its changes. The demand is elastic when price elasticity is greater than 1. The demand is inelastic when price elasticity is less than 1.
The price elasticity of good X is 2 and demand is elastic.
C) Income elasticity of demand shows how much quantity demanded changes of good X when the income changes. The good is normal when there is a positive relationship between income and quantity demanded. The good is inferior when there is a negative relationship between income and quantity demanded.
The income elasticity is 0.5 and the good X is normal.
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