Question 1. Using the following equation, what is the demand equation as a function of Ps if the price of other pastas (Po) is $2, the individual's income (Y) in thousands is $25, and tastes (Z) are represented by 20? What happens if the individual's income increases to $30?
Qd= 500 - 10Ps + 5Po + 20Y +40Z
Question 2. Given the regression estimate of the demand equation of
Qx = 1,000 - 3.3Px + 0.001Y
where Y is income, what is the change in demand if price rises by $1, holding income constant? What is the percentage change in demand if price rises by $1 from an initial price of Px = $200 given Y = 10,000? What is the effect on demand of a $1 increase in income, holding price constant?
Question 3. Consider the estimate demand equation of
Qx = 1,000 -3.3Px -0.2Pz + 0.001Y
(3.5) (2.1) (0.5)
with t values in parenthesis, where Pz is the price of another good Z, and Y is income. Is good Z a substitute or a complement? Can we say confidently whether good X is a normal good or an inferior good?