Answer to Question #114181 in Microeconomics for Maneesh

Question

Log Q=1.00 - 1.50log P + 3.00 log I
(1.20) (-2.50) (0.02) R2=0.21
Where P is price and I is income capita in thousands of rupees. The t statistics are shown in
parenthesis.
Based on the equation, is the product an inferior good, necessity or a luxury good? How much
confidence do you have in your answer? Explain.

Answer 1

Log Q=1.00 - 1.50log P + 3.00 log I

(1.20) (-2.50) (0.02) R2=0.21 

From the equation P>I.

Since the price of good is greater than the income per capital, therefore most consumer will buy the good last after satisfying other important needs. Hence the good is a luxury good