ECO 550 Week 2 – Discussion
“Estimating Demand and Its Elasticities” Please respond to the following:
From the scenario for Katrina’s Candies, examine the procedure Herb will use to estimate the “demand model” for this product and comment on the expected demand price elasticity, income elasticity, and cross price elasticity of the variables used in his model. That is, do you expect demand to be price elastic or inelastic? Will the product’s income elasticity suggest Katrina Candies is a luxury or a necessary good? And, is there likely to be a strong cross price elasticity with the other products that Herb included in his demand model? Explain your answers.
What can you say about consumer demand for a product whose estimated demand elasticities are as follows?
Price Elasticity of demand is -01.25
Income Elasticity of demand is 0.8
Cross Price Elasticity of demand with this product and your product is +2
Option: (You may substitute one of the discussion prompts.)
Consider the data set below. Using the regression feature of Excel, find the demand function for Ham. Would this be a good equation to use to estimate the demand for ham in a new city or market?