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?

  • CreatedFebruary 13, 2015
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