Answer to Question #73783 in Microeconomics for Zulfiqar Ali

Question

Auto-Vehicles Ltd. estimates the monthly demand (Q) for its product is given by the equation log Q = 1.00 - 1.50 log P + 3.00 log / R2 = 0.21 (1.20) (-2.50) (0.02) where P is price and / is income per capita in thousands of rupees. The f-statistics are shown in parentheses and logarithms to the base 10 were used to transform the equation. Assume that estimates are generated by sample of 400 observations.

a. Rewrite the expression as a multiplicative demand equation.
b. Based on the equation, is the product an inferior good, a necessity, or a luxury good?
c. Is the equation likely to be useful in predicting demand for Motorland’s product? Why or why not