1 / 2

Managerial Economics Demand Estimation (log-linear)

Managerial Economics Demand Estimation (log-linear). The empirical demand function for good X is estimated in log- linear form as ln Q = 11.74209 – 1.65 ln P + 0.8 ln M – 2.5 ln P Y

Download Presentation

Managerial Economics Demand Estimation (log-linear)

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript


  1. Managerial Economics Demand Estimation (log-linear) The empirical demand function for good X is estimated in log- linear form as ln Q = 11.74209 – 1.65 ln P + 0.8 ln M – 2.5 ln PY where is the estimated number of units of good X demanded, P is the price of X, M is income, and PY is the price of related good Y. ( All parameter estimates are significantly different 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 is the predicted number of units of good X demanded? Dr. C. Chen

  2. Managerial Economics Demand Estimation (log-linear) The empirical demand function for good X is estimated in log- linear form as ln Q = 11.74209 – 1.65 ln P + 0.8 ln M – 2.5 ln PY where is the estimated number of units of good X demanded, P is the price of X, M is income, and PY is the price of related good Y. ( All parameter estimates are significantly different from 0 at the 5 percent level.) a. Is X a normal or an inferior good? Explain. In a log-linear demand function, the coefficients of indep. variables are the elasticities directly. Therefore, the income elasticity, EM= 0.8 > 0. It is a normal good. b. Are X and Y substitutes or complements? Explain. EXY= −2.5 < 0; they are complements. c. At P=50, M=36,000, and PY=25, what is the predicted number of units of good X demanded? ln Q = 11.74209 – 1.65 ln(50) + 0.8 ln(36,000) – 2.5 ln(25) = 6.81979 Q= e6.81979 =916 Dr. C. Chen

More Related