The general demand function for good A is Qd=7542PA0.05M+6PB+10+3PE+2N where Qd = quantity demanded of good A

The general demand function for good A is

Qd=754−2PA−0.05M+6PB+10γ+3PE+2N

where Qd = quantity demanded of good A each month, PA = price of good A, M = average household income, PB = price of related good B, γ=γ= a consumer taste index ranging in value from 0 to 10 (the highest rating), PE = price consumers expect to pay next month for good A, and N = number of buyers in the market for good A.

a. Interpret the intercept parameter in the general demand function.

b. What is the value of the slope parameter for the price of good A? Does it have the correct algebraic sign? Why?

c. Interpret the slope parameter for income. Is good A normal or inferior? Explain.

d. Are goods A and B substitutes or complements? Explain. Interpret the slope parameter for the price of good B.

e. Are the algebraic signs on the slope parameters for γ,γ, PE, and N correct? Explain.

f. Calculate the quantity demanded of good A when PA = $2, M = $60,000, PB =$24, γ=7γ=7 , PE = $12, and N = 12,000.

Answer rating: 100% (QA)

Qd7542PA005M6PB103PE2N a Intercept is 754 meaning that if each of the other variables assumes zero v... View the full answer