Homework: Chapter 3

3

The demand function for good X is In Qxd=a + b In Px+c In M+e, where Px is the price of good X and Mis income. Least squares

regression reveals that:

â = 7.42 6 = -2.18 = 0.34

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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.

Instruction: Enter your responses rounded to the nearest two decimal places. If entering a negative number, be sure to use a negative

sign (-).

Own price elasticity of demand:[

Demand is [(Click to select)

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.

Instruction: Enter your responses rounded to the nearest two decimal places. If entering a negative number, be sure to use a negative

sign (-).

Income elasticity of demand:[

X is (Click to select)

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