Question: Getaway Tours Inc has estimated the following multiplicative demand function

Getaway Tours, Inc., has estimated the following multiplicative demand function for packaged holiday tours in the East Lansing, Michigan, market using quarterly data covering the past four years (16 observations):
By = 

R2 = 80%, Standard Error of the Estimate = 20
Here, By is the quantity of tours sold, Pie is average tour price, Pox is average price for some other good, Ay is tour advertising, Ax is advertising of some other good, and I is per capita disposable income. The standard errors of the exponents in the preceding multiplicative demand function are

A. Is tour demand elastic with respect to price?
B. Are tours a normal good?
C. Is X a complement good or substitute good?
D. Given your answer to part C, can you explain why the demand effects of Ay and Ax are bothpositive?

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  • CreatedFebruary 13, 2015
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