The empirical demand function for good X is estimated in log-linear form as
ln ˆQ - 11.74209 - 1.65 ln P + 0.8 lnM - 2.5 lnPY
where ˆQ is the estimated number of units of good X demanded, P is the price of X, M isincome, and PY is the price of related good Y. (All parameter estimates are significantlydifferent from 0 at the 5 percent level.)
a. Is X a normal or an inferior good? Explain.
b. Are X and Y substitutes or complements? Explain.
c. At P = 50, M = 36,000, and PY = 25, what are the estimated price ( E ), income (EM),and cross-price elasticities (EXY)? What is the predicted number of units of good Xdemanded?