Consider the following multiplicative demand function where QD = quantity demand
ID: 1090925 • Letter: C
Question
Consider the following multiplicative demand function where QD = quantity demanded, P = selling price, and I = disposable income:
QD = 1.6 P-1.5Y.2
QD = 1.6 P ^-1.5y.2
The coefficient of I indicates that (all other things being held constant):
for a one percent increase in disposable income, quantity demanded would increase by .2 percent, indicating that this good a necessity
for a one percent increase in disposable income, quantity demanded would
increase by .2 percent, indicating that this good is a luxury
for a one percent increase in disposable income, quantity demanded would
increase by .2 percent, indicating that this good is inferior
for a one percent increase in disposable income, quantity demanded would
increase by .2 percent, indicating that this good is inelastic
for a one percent increase in disposable income, quantity demanded would increase by .2 percent, indicating that this good a necessity
for a one percent increase in disposable income, quantity demanded would
increase by .2 percent, indicating that this good is a luxury
for a one percent increase in disposable income, quantity demanded would
increase by .2 percent, indicating that this good is inferior
for a one percent increase in disposable income, quantity demanded would
increase by .2 percent, indicating that this good is inelastic
please show how you come up with the answer , do not just guess !!!
Explanation / Answer
Consider the following multiplicative demand function where QD = quantity demanded, P = selling price, and I = disposable income:
QD = 1.6 P-1.5Y.2
QD = 1.6 P ^-1.5y.2
The coefficient of I indicates that (all other things being held constant):
for a one percent increase in disposable income, quantity demanded would increase by .2 percent, indicating that this good a necessity
for a one percent increase in disposable income, quantity demanded would increase by .2 percent, indicating that this good a necessity