The general demand function for good A is Qd = 754 − 2PA − 0.05M + 6PB +10ℑ+ 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, ℑ = 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 slope parameter for income. Is good A normal or inferior? Explain. b. Are goods A and B substitutes or complements? Explain. Interpret the slope parameter for the price of good B. c. Are the algebraic signs on the slope parameters forℑ, PE, and N correct? Explain.
17. The general demand function for good A is Qd = 754 − 2PA − 0.05M + 6PB +10ℑ+ 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, ℑ = 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 slope parameter for income. Is good A normal or inferior? Explain.
b. Are goods A and B substitutes or complements? Explain. Interpret the slope parameter for the price of good B.
c. Are the algebraic signs on the slope parameters forℑ, PE, and N correct? Explain.
Trending now
This is a popular solution!
Step by step
Solved in 5 steps with 3 images
