In a supply-demand demand diagram, draw the shift of the demand curve for hamburgers in your hometown due to the following events. In each case, show the effect on equilibrium price and quantity. The price of taco increases. All hamburger sellers raise the price of their French fries. Income falls in town. Assume that hamburgers are a normal good for most people. Income falls in town. Assume that hamburgers are an inferior good for most people. Hot dog stands cut the price of hot dogs. Concept Introduction: Normal Goods: Normal goods are those goods which have a direct relationship between the income and quantity demanded. When income increases the quantity demanded also increases and vice versa. Substitute goods: Substitute goods are otherwise known as alternative goods which are used for the same purpose e.g. Tea and Coffee. Complementary goods: The complementary goods are those goods are used together. For e.g. pen and ink. Inferior goods: The inferior goods are those kinds of goods it demanded decreases when the income of the people increases for e.g. Potatoes.

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Using data from 1988 for houses sold in Andover, Massachusetts, from Kiel and McClain (1995), the following equation relates housing price (price) to the distance from a recently built garbage incinerator (dist): = log(price) 9.40 + 0.312 log(dist) n = 135, R2 = 0.162. Interpretation of the slope coefficient? ► How would our interpretation of the slope coefficient change if distance were measured in metres instead of kilometres?

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Question

Chapter 3, Problem 2P

To determine

In a supply-demand demand diagram, draw the shift of the demand curve for hamburgers in your hometown due to the following events. In each case, show the effect on equilibrium price and quantity.

The price of taco increases.

All hamburger sellers raise the price of their French fries.

Income falls in town. Assume that hamburgers are a normal good for most people.

Income falls in town. Assume that hamburgers are an inferior good for most people.

Hot dog stands cut the price of hot dogs.

Concept Introduction:

Normal Goods: Normal goods are those goods which have a direct relationship between the income and quantity demanded. When income increases the quantity demanded also increases and vice versa.

Substitute goods: Substitute goods are otherwise known as alternative goods which are used for the same purpose e.g. Tea and Coffee.

Complementary goods: The complementary goods are those goods are used together. For e.g. pen and ink.

Inferior goods: The inferior goods are those kinds of goods it demanded decreases when the income of the people increases for e.g. Potatoes.

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CEO Salary and Firm SalesWe can estimate a constant elasticity model relating CEO salary to firm sales. The data set is the same one used in Example 2.3, except we now relate salary to sales. Let sales be annual firm sales, measured in millions of dollars. A constant elasticity model is[2.45]ßßlog (salary) = ß0 + ß0log (sales) + u,where ß1 is the elasticity of salary with respect to sales. This model falls under the simple regression model by defining the dependent variable to be y = log(salary) and the independent variable to be x = log1sales2. Estimating this equation by OLS gives[2.46]log (salary)^=4.822 + 0.257 (sales) n = 209, R2 = 0.211.The coefficient of log(sales) is the estimated elasticity of salary with respect to sales. It implies that a 1% increase in firm sales increases CEO salary by about 0.257%—the usual interpretation of an elasticity.