Log Functions and Elasticity of Variables
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The demand for haddock has been estimated as:
log Q = a + b log P + c log I = d log Pm
where Q = quantity of haddock sold in New England
P = price per pound of haddock
I = a measure of personal income in the New England region
Pm = an index of the price of meat and poultry
If b = -2.174, c = .461, and d = 1.909,
Calculate the elasticity of demand for each parameter.
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Solution Summary
The solution describes the steps to calculate elasticity of demand for each of the parameters.
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Calculating Own price elasticity of demand
log Q = a + b log P + c log I - d log Pm
Differentiating with respect to P, we get
(1/Q)*dQ/dP=b*(1/P)
dQ/dP=bQ/P
Own price elasticity of demand=(dQ/dP)*(P/Q)=(bQ/P)*(P/Q)=b
So, own price elasticity of ...
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- BEng (Hons) , Birla Institute of Technology and Science, India
- MSc (Hons) , Birla Institute of Technology and Science, India
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