Question

(4) A researcher estimated a demand function for commodity "A" using weekly data collected over a 30-month period. The estimated model is presented below. Qd. 200 2Pa +4.5I+3.0 Py. where Pa Price of commodity "A" Consumer incomes Py Price of commodity Y (a)On aggregate, does the behavior of the consumers of this product follow the LAW OF DEMAND? Explain. (b) Is commodity "A" a normal or an inferior good? How did you know? (c) Comment on the relationship between commodity "A" and commodity "y" (d) For Pa 10, I 100, Py 8, find the price, income and cross price elasticities of demand for this product and interpret the results.

Answer 1

(4) 0 - 200- 2A 14.5I * 39 a dQ.-2 OPA Law Of demone holde - 11 Sherit the boys buvo Relationship between Quoghly demanded ood prices. (b) rdo - 4.5 - at the same ganzesses drome olla It shows the negative peletionghi poter onde comedite It shows the normal goed beruse 20 20 20

e) da Pys Commodity A and good because are subelilyte Commodity y dan de so | | id) | Pa =10) 5 - 1001, [1938 Q = 200-2 (10) +45 (109)+ 318) Q = 200 - 20+45+24 Q = 249 parce ebaeterniz fa leo ) encome elasticato E-domu ) --45 AL -1.8072 own porce eletricia Emos pelot) (13) = (3) () own price elasticity -00913

price elasticity Ed=-0.080321 of the price goncreases by ey. the Quantity (QA) dlpomanded decreases by 0.080321 Y . go come elasticity (Eg) = on 118092 86 goncome grcreases by ly them Quantity demanded for A grcrease8 by 1.8072 %. Cross price elasticity Ex=0.0963, gt price of y encreases by by. then Quantity demand for a greseases by 0.0963 y.