7. Exercise 4.7

An estimate of the demand function for household furniture produced the following results:

F=0.0036 Y0.96R0.16P(0.37)=0.0036 Y0.960.160.37

r2=0.9962=0.996

where

F = furniture expenditures per household

Y = disposable personal income per household

R = value of private residential construction per household

P = ratio of the furniture price index to the consumer price index

The point price elasticity for household furniture is , and the income elasticity is .

According to the estimated model, a 10 percent increase in the value of private residential construction per household the quantity demanded by percent.