The demand for good X is given by lnQ_x^d = 120 - 0.9 lnP_x + 1.5 lnP_y - 0.7 lnM.Which of the following statements is correct? A)X has constant income elasticity. B)An economic downturn will increase demand for X. C)A 15% increase in income would increase demand for X by 10.5%. D)X has a constant income elasticity and an economic downturn will increase the demand for X.

Question

Quizplus · Accepted Answer

The demand function is in log-linear form, indicating constant elasticities. The coefficient of lnM (-0.7) represents the income elasticity, which is constant.

The Demand for Good X Is Given by LnQxd =

The Demand for Good X Is Given by LnQ_x^d =