The demand for haddock has been estimated as log Q=a+b log P +c log I + d log Pm

Question

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, forcast the percentage change in the quantity of haddock demanded next year.

Explanation / Answer

The slope coefficient in the log log specification directly gives the elasticity of Q w.r.t the variable in question. a. Since P is the price, the coefficient of P i.e b directly gives the price elasticity of the demand. b. Since I is income the coefficient of I i.e c directly gives the income elasticity of the demand. c. Cross price elasticity will be given by the slope coefficient of Pm Since Qd is demand for haddock and Pm is the price of meat and poultry. d. Q = a*P^b * I^c * Pm^d e. Elasticity of income is given by c. c= 0.461 Now income level changes by 5% The demand will change by 5% * 0.461 = 2.305% I hope this helps. Do rate me. Require ratings. :) Thank You

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