Question 1

Suppose the demand for sunscreen (X) has been estimated to be ln Q_x = 5 - 1.7 ln P_x + 3 ln S - 3 ln A_y, where S denotes the average hours of sunshine per day and A_y represents the level of advertising for good Y. a. What would be the impact on demand of a 5 percent increase in the daily amount of sunshine? b. What would be the impact of a 10 percent reduction in the amount of advertising toward good Y? c. What might be good Y in this example?

Accepted Answer

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Question 2

A consumer spends all of her income on only one good. What is the income elasticity of demand for this good? What is the own price elasticity of demand for this good?

Accepted Answer

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Question 3

The income elasticity of demand for your firm's product is estimated to be 0.75. A recent report in The Wall Street Journal says that national income is expected to decline by 3 percent this year.
a. What should you do with your stock of inventories?
b. What do you expect to happen to your sales?
c. How would you answer parts a and b if you expected a 5 percent increase in income instead of a decrease?

Accepted Answer

The answer of The income elasticity of demand for your...

Question 4

As the manager of a local hotel chain, you have hired an econometrician to estimate the demand for one of your hotels (H). The estimation has resulted in the following demand function: Q_H = 2,000 - P_H - 1.5P_C - 2.25P_SE + 0.8P_OH + 0.01M, where P_H is the price of a room at your hotel, P_C is the price of concerts in your area, P_SE is the price of sporting events in your area, P_OH is the average room price at other hotels in your area, and M is the average income in the United States. What would be the impact on your firm of: a. A $500 increase in income? b. A $10 reduction in the price charged by other hotels? c. A $7 increase in the price of tickets to local sporting events? d. A $5 increase in the price of concert tickets, accompanied by an $8 increase in income?

Accepted Answer

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Question 5

Your firm's research department has estimated the income elasticity of demand for Art Deco lawn furniture to be -0.85. You have just learned that due to an upturn in the economy, consumer incomes are expected to rise by 5 percent next year. How will this event affect your ordering decision for PVC pipe, which is the main component in your furniture?

Accepted Answer

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Question 6

The demand for Wanderlust Travel Services (X) is estimated to be Q_x = 22,000 - 2.5P_x + 4P_y - 1M + 1.5A_x, where A_x represents the amount of advertising spent on X and the other variables have their usual interpretations. Suppose the price of good X is $450, good Y sells for $40, the company utilizes 3,000 units of advertising, and consumer income is $20,000. a. Calculate the own price elasticity of demand at these values of prices, income, and advertising. b. Is demand elastic, inelastic, or unitary elastic? c. How will your answers to parts a and b change if the price of Y increases to $50?

Accepted Answer

The answer of The demand for Wanderlust Travel Services (X)...

Question 7

The demand for company X's product is given by Q_x = 12 - 3P_x + 4P_y. Suppose good X sells for $3.00 per unit and good Y sells for $1.50 per unit. a. Calculate the cross-price elasticity of demand between goods X and Y at the given prices. b. Are goods X and Y substitutes or complements? c. What is the own price elasticity of demand at these prices? d. How would your answers to parts a and c change if the price of X dropped to $2.50 per unit?

Accepted Answer

The answer of The demand for company X's product is...

Question 8

A firm is considering raising its price by 9 percent and has hired an econometrician to estimate the elasticity of demand for its product. The econometrician estimates the parameters of a log-liner demand function and reports that the parameter estimate for the elasticity of demand is -1.5 and the standard error of the estimate is 0.3.
a. If the firm raises its price by 9 percent, what is the expected change in quantity demanded?
b. Approximate the upper and lower bounds on the 95 percent confidence interval for the change in quantity demanded.

Accepted Answer

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Question 9

Your firm's research department has estimated the elasticity of demand for toys to be -0.7. As the manager of a local chain of toy stores, determine the impact of an 8 percent increase in toy prices on your total revenues.

Accepted Answer

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Question 10

An econometrician has estimated the inverse demand relation P = a + bQ + e and found that    and  = 0.75. Find the approximate 95 percent confidence interval for the true values of a and b.

Accepted Answer

The answer of An econometrician has estimated the inverse demand...

Quiz 3: Quantitative Demand Analysis

A consumer spends all of her income on only one good. What is the income elasticity of demand for this good? What is the own price elasticity of demand for this good?

Your firm's research department has estimated the elasticity of demand for toys to be -0.7. As the manager of a local chain of toy stores, determine the impact of an 8 percent increase in toy prices on your total revenues.

An econometrician has estimated the inverse demand relation P = a + bQ + e and found that and = 0.75. Find the approximate 95 percent confidence interval for the true values of a and b.