ln QXd = 7 - 1.5 ln PX + 2 ln PY - 0.5 ln M + ln A

Px = 15

Py = 6

M= 40, 000

A = 350

a. Determine the own price elasticity of demand, and state whether demand is elastic, inelastic, or unitary elastic. Own price elasticity: Demand is: inelastic, unitary elastic, elastic.

In the function ln QXd = 7 - 1.5 ln PX + 2 ln PY - 0.5 ln M + ln A

, the coefficient of lnPx represents the price elasticity of demand. Thus, it is given by -1.5

If the price elasticity of demand is greater than 1 then it is elastic demand. It means that demand is sensitive to the changes in the level of price. The percent change in quantity demanded is greater than the percent change in price.

b. Determine the cross-price elasticity of demand between good X and good Y, and state whether these two goods are substitutes or complements. Cross-price elasticity: These two goods are: substitutes, complements.

In the function ln QXd = 7 - 1.5 ln PX + 2 ln PY - 0.5 ln M + ln A, the coefficient of lnPy represents the cross-price elasticity of demand. Thus, it is given by 2.

Since the price elasticity of demand is greater than zero, we can say that the good is a substitute good. That means as the price of X rises, quantity demanded for Y also rises.

c. Determine the income elasticity of demand, and state whether good X is a normal or inferior good. Income elasticity: Good X is: inferior, normal

In the function ln QXd = 7 - 1.5 ln PX + 2 ln PY - 0.5 ln M + ln A

, the coefficient of lnPm represents the income elasticity of demand. Thus, it is given by -0.5

As it is less than zero, we can say that the good is an inferior good. As incomes rise, quantity demanded should also rise but in this case, the negative coefficient means it falls signifying an inferior good.

d. Determine the own advertising elasticity of demand.

In the function ln QXd = 7 - 1.5 ln PX + 2 ln PY - 0.5 ln M + ln A, the coefficient of lnA represents the own advertising. Thus, it is given by 1.