Question: The demand function for good X is ln Q d X = a + b ln P X + c ln M + e, where

The demand function for good X is ln QdX = a + b ln PX + c ln M + e, where PX is the price of good X

and M is consumer income.Least squares regression analysis reveals that a = 5.25, b = -1.36 and c = -0.14.

a. If M = 45,000 and PX = 5.69, compute the own price elasticity of demand based on these estimates.

Determine whether demand is elastic or inelastic.Show your work.

b. If M = 45,000 and PX = 5.69, compute the income elasticity of demand based on these estimates.

Determine whether X is a normal or inferior good.Show your work.

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