The estimated market demand for good X is Q = 70 3.5P 0.6M + 4PZ

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The estimated market demand for good X is

Qˆ = 70 – 3.5P – 0.6M + 4PZ

where Qˆ is the estimated number of units of good X demanded, P is the price of the good, M is income, and PZ is the price of related good Z. (All parameter estimates are statistically significant at the 1 percent level.)

a. Is X a normal or an inferior good? Explain.

b. Are X and Z substitutes or complements? Explain.

c. At P = 10, M = 30, and PZ = 6, compute estimates for the price (Ê), income (ÊM), and cross-price elasticity’s (ÊXZ)

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Managerial Economics and Business Strategy

ISBN: 978-0073523224

8th edition

Authors: Michael Baye, Jeff Prince

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Posted Date: Jun 25, 2018 09:50 AM

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The estimated market demand for good X is Q = 70 3.5P 0.6M + 4PZ

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a To know if the good is inferior or normal good we differentiate Q with respect to inc... View the full answer

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