Log QADD5.80-1.50Log PADD+5.75 Log PIK+3.80 log POP +0.80 Log Yt.(3) What is the

Question

Log QADD5.80-1.50Log PADD+5.75 Log PIK+3.80 log POP +0.80 Log Yt.(3) What is the relationship between the price of Addidas shoes and the quantity demanded of Addidas shoes? What effect does the price have on the quantity demanded? i) What is the income elasticity demand for Addidas shoes? (ii) What is the cross elasticity of demand for Addidas shoes? (iv) If the population (POP) increases by 5%, what would be the effect on the demand for Addidas shoes(Log QAD If the general income level (Y) increases by 10%, what is the income elaticity of demand for Addidas shoes? (v) (50 Points) 3. You ran another regression from 2009 to 2016 and observed the following Log QADD 5.80-1.90 Log PADD 5.80 Log PNIK+ 2.50 log POP1.30 Log Y+ s,4) By comparing equations 3 and 4; 0 Is the price elasticity more elastic in the short run than the long run? Why? i) Compare the cross elasticities in the equations ii) If the elasticities all equals zero(0), what would be the demand for Addidas shoes? (21 Points)

Explanation / Answer

Note: dlog X = X/DX i.e. proportionate change in X.

i. The relationship between price and quantity demanded of Addidas is negative. A 1% increase in price of addidas results in 1.50% decrease in quantity demanded of Addidas.

ii.Income elasticity = dlogQadd/dlogY = 0.80

iii. Cross elasticity - dlogQadd/dlogPNIK = 5.75

iv. dlogQadd = 3.80*dlogpop = 3.80*5% = 0.19 = 19%
i.e. the demand for addidas shoes increases by 19%

v. dlogQadd = 0.80*dlogY = 0.8*10% = 0.08 = 8%
i.e. demand for addidas increases by 8%

PS: According to chegg guidelines in event of multiple parts, only first four are attempted. However, you may repost the qsn asking for solution of specific questions/parts.

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