A mathematical demand function for new Toyotas sold per year for a dealer is as

Question

A mathematical demand function for new Toyotas sold per year for a dealer is as follows:

Qt = 200 – 0.01Pt + 0.005Pm – 10Pg +0.01I + 0.003A

Qt = quantity purchased,

Pt = the average price of Toyotas,

Pm = the average price of Mazdas,

Pg = the price of gasoline,

I = per capita income,

and A = dollars spent annually on advertising

6. Explain in words what the intercept (which is 200) includes (or does not include).

7. The sign of the variable I is +. Suppose it were negative (that is -.01). What would the negative sign tell you about the type of good Toyotas are?

8. Glory be! Enough pipelines have finally been constructed to carry significantly more oil from the Cushing, OK, petroleum exchange to refineries in Houston. As a result, the price of gasoline decreases by $2.00 per gallon. What change in Toyota demand will result (give the numerical value, too)?

9. The amount budgeted for advertising spending is decreased by $100,000. What change in Toyota demand will result (give the numerical value, too)?

10. Which will cause a greater influence on Toyota demand: a $1,000 decrease in the price of a Toyota or a $1000 increase in the price of a Mazda? Explain what items in the given function give you this information.

Explanation / Answer

6) intercept of 200 shows the market demand of toyotas even when income, price, price of mazda, advertisement, etc all variables are zero. It includes saving or borrowing people use to buy toyotas.

7) if the sign of I is negative, toyotas would be inferior good because negative sign shows increase in income leads to decrease in quantity demanded.

8) change in Qt = - 0.01*changed in price

Change in Qt = -0.01(-2) = 0.02

Quantity demanded of toyotas increases by 0.02 units.

9) there is a positive relationship between advertisements and quantity demanded. Thus when advertisement expenditure decreases, number of toyotas demanded decreases.

Change in quantity demanded = 0.003(-100000) = -300

Quantity of toyotas demanded decreases by 300.

10) decrease in price of Toyota will cause a greater influence on toyota demand. From the coefficients of Pt and Pm we get this information.

Coefficient on Pt is 0.01 and coefficient on Pz is 0.005. coefficient on Pt is higher which implies that Pt has bigger impact on Qt.

Related Questions

Navigate

• Browse (All)
• Browse A
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.