1. What are the major advantages and disadvantages of estimating demand by market consumer clinics?
2. (a) On what does the domestic-currency price of a nation's imports depend?
(b) What would happen to the domestic-currency price of a nation's imports if the foreign-currency price of the nation's currency increases and the nation's currency depreciates (i.e., loses value in relation to the foreign currency)?
3. In a study published in 1980, B.B. Gibson estimated the following price and income elasticities of demand for six type of public goods.
State Activity Price Elasticity Income Elasticity
Aid to needy people -0.83 0.26
Pollution control -0.99 0.77
Colleges and universities -0.87 0.92
Elementary school aid -1.16 1.14
Parks and recreation areas -1.02 1.06
Highway construction and maint -1.9 0.99
(a) Do these public goods conform to the law of demand? For which public goods is demand price elastic?
(b) What types of goods are these public goods?
(c) If the price or cost of college and university education increase by 10 percent and, at the same time, incomes also increase by 10 percent, what would be the change in the demand for college and university education?
4. In the volume, Consumer Demand in the United States: Analyses and Projections ( Cambridge, Mass.: Harvard University Press, 1970), H.S. Houthakker and L.D. Taylor presented the following results for their estimated demand equation from 1929 to 1961 (excluding the 1942 through 1945 war year in the United States:
Where Q1 = per capita personal consumption expenditures on bus transportation during year t, at 1954 prices
Xt= total per capita consumption expenditures during year t, at 1954 prices
Pt= relative prices of bus transportation in year t, at 1954 prices
St= car stock per capita in year t
Dt= dummy variable to separate pre-from post-World war II years:
Dt= 0 for year 1929 to 1941
Dt= 1for years 1946 to 1961
The number of parentheses below the estimated slope coefficients refer to the estimated t values.
Evaluate the above results (a) in terms of the signs and values of the coefficients, (b) for the statistical significance of the coefficients and the explanatory power of the regression.
This solution provides detailed explanations with equations for various questions regarding demand.