6. The demand for haddock has been estimated as Log Q = a + b log P + c log I +

Question

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 = 0.461, and d = 1.909, a. Determine the price elasticity of demand. b. Determine the income elasticity of demand c. Determine the cross price elasticity of demand d. How would you characterize the demand for haddock? e. Suppose disposable income is expected to increase by 5 percent next year. Assuming all other factors remain constant, forecast the percentage change in the quantity of haddock demanded next year.

Explanation / Answer

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. Assuming all other factors remain constant, forecast the percentage change in the quantity of haddock demanded next year.

Increase in income=5%
=5x0.461
=2.305% that is change in quantity demand of haddock

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