What would we expect to happen to quantity demanded

Reference no: EM13163065

You decide to estimate the following quarterly sales forecasting model for new boat sales in your local county:

Qt = a + bt + cD

The equation is estimated using quarterly data on new boat sales in the county from the 3rd quarter of 2001 to the 4th quarter of 2007 (t = 1,...,26). The variable D is a dummy variable for the second quarter, which is the "season" for selling new boats: D = 1 in the second quarter, and 0 otherwise. The results of the estimation are:

Dependent Variable	LNQ	R-SQUARE	F-RATIO	P-VALUE ON F
OBSERVATIONS	64	0.8464	110.25	0.0001
		PARAMETER	STANDARD
VARIABLE		ESTIMATE	ERROR	T-RATIO	P-VALUE
INTERCEPT		5.65	3.20	1.77	0.0825
LNP		-1.02	0.59	-1.73	0.0890
LNM		0.45	0.22	2.05	0.0452
LNPR		-2.0	0.75	-2.67	0.0098

a. Express the estimated demand equation in logarithms.

b. Is X a normal or an inferior good? And how are goods X and R related? Explain.

c. Which of the parameter estimates are statistically significant at the 5 percent level?

d. Estimate the own-price elasticity for good X, the cross-price elasticity for goods X and R, and the income elasticity for good X.

e. Holding all other things constant, if household income were to fall by 22%, what would we expect to happen to quantity demanded? Explain.

f. Holding all other things constant, if own price were to increase by 22%, what would we expect to happen to quantity demanded? Explain.

g. Holding all other things constant, if the price of R were to fall by 8%, what would we expect to happen to quantity demanded? Explain.

Reference no: EM13163065

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