Chapter 4

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  • Topic: Supply and demand, Consumer theory, Price elasticity of demand
  • Pages : 3 (440 words )
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  • Published : November 1, 2012
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5.General cereals are using a regression model to estimate the demand for tweetie sweeties, a whistle shaped sugar coated breakfast cereal for children. the following(multiplicative exponential) demand function is being used: QD=6,282P-2.15A1.05N3.70 where QD = quantity demanded, in 10ox boxes

P= price per box, in dollars

A= advertising expenditures on daytime television, in dollars

N = proportion of the population under 12 years old

a. Determine the point price elasticity of demand for tweetie sweeties.

-2.15

b. Determine the advertising elasticity of demand

1.05

c. What interpretation would you give to the exponent of N?

Increase in 1% in population of 12 year old will increase the demand of the general cereal’s product by 3.70%.

6. The demand for haddock has been estimated as         log Q = a + b log P + c log I = d log Pm Where Q =  quantity of haddock sold in New England
P =  price per pound of haddock
I  =  a measure of personal income in the New England region Pm = an index of the price of meat and poultry
If b = -2.174, c = .461, and d = 1.909,

1. Determine the price elasticity of demand.
=-2.174

2. Determine the income elasticity of demand.
= 0.461

3. Determine the cross price elasticity of demand
=1.909

4. How would you characterize the demand for haddock?

-2.175 = demand is elasticity as it is more than 1
0.461=if income went up 1% its effect is minimum.
1.909=if price elasticity is 1.909 it will effect haddock.

5. Suppose disposable income is expected to increase by 5 percent next year.  Assuming all other factors remain constant, forecast the percentage change in the quantity of haddock demanded next year.

Increase in income=5%
=5x0.461
=2.305% that is change in quantity demand of haddock.

7.  An estimate of the demand function for household...
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