1. Suppose demand is given by Q _x^d = 50 4P_x + 6P_y + A_x,

where P_x = $4, P_y = $2, and A_x = $50.

(a) What is the quantity demanded of good x? Please show your calculations.

(b) What is the own price elasticity of demand (point elasticity) when P_X = $4? Is demand elastic

or inelastic at this price? Please explain.

(c) What is the cross price elasticity of demand between good X and good Y when P_X = $4 (point

elasticity) ? Are goods X and Y substitutes or complements? Please explain.

2.Suppose the own price elasticity of demand for good X is 0.25, and the quantity of good X increases by 5 percent. What would you expect to happen to the total expenditures on good X? Please explain and show any calculations.

3.When the price of butter was "low," consumers spent $5 billion annually on its consumption. When the price doubled, consumer expenditures increased to $7 billion. Recently you read that this means that the demand curve for butter is upward sloping (i.e., price and quantity demanded are directly related, as price increases, quantity demanded also increases). Do you agree? Explain.

4. Revenue at a major smart phone manufacturer was $2.3 billion for the nine months ending March 2, up 85 percent over revenues for the same period last year. Management attributes the increase in revenues to a 108 percent increase in shipments (quantity demanded), despite a 21 percent drop in the average blended selling price of its line of phones.

Given this information, please calculate the price elasticity of demand and then explain whether it is surprising that the company's revenue increased when it decreased the average selling price of its phones? Please explain.

5. The data file Homework3.Question5.xlsx is below, has data from the United States. The variables included in the data set are

Real GDPReal GDP of the United States

InflationAnnual Inflation in the United States

Housing PriceAverage annual Housing Prices in the United States

Interest RateAnnual Market Interest rate

UNRATEUnemployment rate

LFPRLabor Force Participation rate - the proportion of the adult population that

is a member of the labor force, the labor force is the sum of all employed and unemployed

GovtEducGovernment expenditure in billions of dollars on education

(a) Run a regression of Real GDP on Inflation, Housing Price, Interest Rate, Unrate, LFPR, and

GovtEduc. Please copy and paste your EXCEL regression output (do not upload your EXCEL file with the results).

(b) What sign would you expect for each of the coefficients (positive or negative)? Please

explain.

(c) Discuss the "Fit" of the regression.

(d) Which coefficients of independent variables in the regression are significant? Please explain.

(e) Which of the variables given above can be used to explain the Real GDP in the United

States? Please explain.

(f) If you had to choose one variable as a policy maker to concentrate on in order to increase

Real GDP in the United States, based on the above regression results, which variable would you choose? Please explain.

Year 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1995 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Real GDP 8510.990 8866.499 9192.134 9365.494 9355.355 9684.892 9951.503 10352.432 10630.321 11031.350 11521.938 12038.283 12610.491 13130.987 13262.079 13493.065 13879.129 14406.383 14912.509 15338.257 15626.030 15604.688 15208.834 15598.754 15840.664 16197.008 16495.370 16912.038 17403.843 17688.890 18108.082 18638.164 Inflation 3.664563217516910 4.077741107444080 4.827003030089490 5.397956439903220 4.234963964538530 3.028819678149700 2.951656966385540 2.607441592154600 2.805419688536550 2.931204199934400 2.337689937307410 1.552279098743620 2.188027196973580 3.376857271499350 2.826171118854020 1.586031626506030 2.270094973361130 2.677236693091730 3.392746845495470 3.225944100704070 2.852672481501360 3.839100296651010 -0.355546266299750 1.640043442389890 3.156841568622060 2.069337265260590 1.464832655627140 1.622222977408210 0.118627135552435 1.261583205705370 2.130110003659630 2.442583296928180 Housing Price 66.27558333333330 71.15150000000000 75.51358333333330 76.93683333333330 75.91991666666670 76.32750000000000 77.41616666666670 79.47533333333330 81.00616666666670 82.83058333333330 85.34325000000000 90.12608333333330 96.40075000000000 104.77675000000000 113.18658333333300 122.28808333333300 133.74275000000000 150.46625000000000 171.78266666666700 183.48591666666700 179.94816666666700 164.06675000000000 148.55608333333300 144.66283333333300 139.24008333333300 140.98800000000000 154.52450000000000 164.69400000000000 172.20225000000000 180.96525000000000 191.47050000000000 202.58750000000000 Interest Rate 5.78 6.67 8.11 7.49 5.38 3.43 3.00 4.25 5.49 5.01 5.06 4.78 4.64 5.82 3.39 1.60 1.01 1.37 3.15 4.73 4.35 1.37 0.15 0.14 0.05 0.09 0.06 0.03 0.05 0.32 0.93 1.94 UNRATE 6.2 5.5 5.3 5.6 6.9 7.5 6.9 6.1 5.6 5.4 4.9 4.5 4.2 4.0 4.7 5.8 6.0 5.5 5.1 4.6 4.6 5.8 9.3 9.6 8.9 8.1 7.4 6.2 5.3 4.9 4.3 3.9 LFPR 65.6 65.9 66.4 66.5 66.2 66.4 66.3 66.6 66.6 66.8 67.1 67.1 67.1 67.1 66.8 66.6 66.2 66.0 66.0 66.2 66.0 66.0 65.4 64.7 64.1 63.7 63.3 62.9 62.7 62.8 62.8 62.9 GovtEduc 215.429 231.023 253.079 274.888 291.248 308.521 325.963 342.261 362.405 378.472 398.296 424.270 452.571 487.914 525.802 545.057 565.550 596.950 627.411 663.078 708.127 749.532 777.316 813.238 821.745 828.477 860.947 883.586 907.763 929.517 956.221 989.044