# Consider the estimated demand equation of Qx=1000-3.3Px-0.2Pz+0.001Y Where Y is income, z is… 1 answer below »

Consider the estimated demand equation of

Qx=1000-3.3Px-0.2Pz+0.001Y

Where Y is income, z is another good, and P denotes the price.

a. What is the demand equation as a function of Px if the price of good z is $100, the

income in thousands is $25? Calculate the price elasticity for a $1 change in price

at initial price level 0. Calculate the income elasticity for a $1 change in

income at initial income ($25k).

b. What is the change in demand if price rises by $1, holding other factors constant?

What is the percentage change in demand if price rises by $1 from an initial price

of Px=0 given Y=000 and Pz=$100? What is the effect on demand of $1

increase in income, holding other factors constant? What is the percentage change

in demand if income rises by $1 from an initial income of Y=$25000 given

Px=$200 and Pz=$100?

c. Is good z a substitute or a complement? Can we say confidently whether good X

is a normal good or an inferior good?

d. Suppose Dg is a dummy variable for gender (Dg=1 for female) and De is a dummy

variable for employment status (De=1 for employed people) in the following

Qx=1000-3.3Px-0.2Pz+0.001Y-100Dg+50De