What is the price elasticity of demand for tours

Reference no: EM13121337

Breakaway Tours, Inc., has estimated the following multiplicative demand function for packaged holiday tours in the Flushing, New York, market using quarterly data covering the past five years:

Q_Y = 5P_Y^-2.5P_X^-0.86Y^1.76A^1.4

Here, Q_Y is the quantity of tours sold, P_Y is average tour price, P_X is average price for some other good, A is tour advertising, and Y is per capita disposable income.

a. What is the price elasticity of demand for tours? Interpret your answer. Given this elasticity, should Breakaway increase prices to increase revenue? Explain.

b. Are tours a normal good? Explain.

c. What is the relationship between Goods X and Y? How strong is this relationship? Explain each answer well.

d. Does advertising seem effective for this company? Explain.

e. What does the demand function above suggest about the relationship of each variable to each other? Does elasticity ever change if the values of P_Y, P_X, Y, or A change? Explain.

Reference no: EM13121337

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