Question

Suppose the demand for good x is lnqxd = 21 - .8lnpx - 1.6lnpy + 6.2lnm + .4lnax. then we know that the own-price elasticity for good x is:

Answer 1

Answer: Inelastic

Step-by-step explanation:

The coefficients in a log-log model represent the elasticity of your dependent variable with respect to your independent variable. In other words, the coefficient in a log-log demand model is the estimated percent change in
`Q_(xd)` with respect to a percentage change in the independent variables like
`P_(x)`,
`P_(y)`, M,
`A_(x)`, etc.

Thus, coefficient of
`P_(x)` represents the elasticity of demand for good X with respect to Price of good x. So, Own-price elasticity of good x is 0.8.

Since this is less than 1 the good is relatively inelastic.