The demand for good X has been estimated to be ln Q_x^d = 100 − 2.5 ln P_X + 4 ln P_Y + ln M.The income elasticity of good X is: A) 4.0. B) 1.0. C) 2.0. D) −2.5.

Question

Quizplus · Accepted Answer

The income elasticity of demand is calculated by the coefficient of the income variable (ln M) in the demand equation. In this case, the coefficient is 1, indicating an income elasticity of 1.0.

The Demand for Good X Has Been Estimated to Be