Chapter 4

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. 5 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.

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Assuming all other factors remain constant, forecast the percentage change in the quantity of haddock demanded next year. Increase in income=5% =5×0. 461 =2. 305% that is change in quantity demand of haddock. 7. An estimate of the demand function for household furniture produced the following results: F = 0. 0036Y =0. 996 Where F = furniture expenditures per household Y = disposable personal income per household R = value of private residential construction per household

P = ratio of the furniture price index to the consumer price index 1. Determine the point price and income elasticity’s for household furniture. 2. What interpretation would you give to the exponent for R? Why do you suppose R was included in the equation as a variable? 3. If you were a supplier to the furniture manufacturer, would you have preferred to see the analysis performed in physical sales units rather than dollars of revenue? How would this change alter the interpretation of the price coefficient, presently estimated as -0. 48?

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