Analyzing the given demand functions
Not what you're looking for?
1. Using the following equation, what is the demand equation as a function of Ps if the price of other pastas (Po) is $2, the individual's income (Y) in thousands is $25, and tastes (Z) are represented by 20? What happens if the individual's income increases to $30?
Qd= 500 - 10Ps + 5Po + 20Y +40Z
2. Given the regression estimate of the demand equation of
Qx = 1,000 - 3.3Px + 0.001Y
where Y is income, what is the change in demand if price rises by $1, holding income constant? What is the percentage change in demand if price rises by $1 from an initial price of Px = $200 given Y = 10,000? What is the effect on demand of a $1 increase in income, holding price constant?
3. Consider the estimate demand equation of
Qx = 1,000 -3.3Px -0.2Pz + 0.001Y
(3.5) (2.1) (0.5)
with t values in parenthesis, where Pz is the price of another good Z, and Y is income. Is good Z a substitute or a complement? Can we say confidently whether good X is a normal good or an inferior good?
Purchase this Solution
Solution Summary
Solutions study the variations in demand due to changes in income.
Solution Preview
1. Using the following equation, what is the demand equation as a function of Ps if the price of other pastas (Po) is $2, the individual's income (Y) in thousands is $25, and tastes (Z) are represented by 20? What happens if the individual's income increases to $30?
Qd= 500 - 10Ps + 5Po + 20Y +40Z
Put Po=$2, Y=$25, Z=20
Qd=500-10Ps+5*2+20*25+40*20=1810-10Ps
In the first case, demand equation will be given by
Qd=1810-10Ps
Now let us assume that individual income rises to $30 thousands. Then
Qd=500-10Ps+5*2+20*30+40*20=1910-10Ps
Demand equation will change to
Qd=1910-10Ps
Change in demand=(1910-10Ps)-(1810-10Ps)=100 ...
Education
- BEng (Hons) , Birla Institute of Technology and Science, India
- MSc (Hons) , Birla Institute of Technology and Science, India
Recent Feedback
- "Thank you"
- "Really great step by step solution"
- "I had tried another service before Brain Mass and they pale in comparison. This was perfect."
- "Thanks Again! This is totally a great service!"
- "Thank you so much for your help!"
Purchase this Solution
Free BrainMass Quizzes
Economic Issues and Concepts
This quiz provides a review of the basic microeconomic concepts. Students can test their understanding of major economic issues.
Elementary Microeconomics
This quiz reviews the basic concept of supply and demand analysis.
Basics of Economics
Quiz will help you to review some basics of microeconomics and macroeconomics which are often not understood.
Pricing Strategies
Discussion about various pricing techniques of profit-seeking firms.
Economics, Basic Concepts, Demand-Supply-Equilibrium
The quiz tests the basic concepts of demand, supply, and equilibrium in a free market.