Demand Analysis
1. John Smith, the research manager for marketing at the Chevrolet Division of the General Motors Corporation, has specified the following general demand function for Chevrolets in the United States:
Qc =APc, N, I, Pf, Pg, a, Pi)
where Qc is the quantity demanded of Chevrolets per year, Pc is the price of Chevrolets, JV is population, / is disposable income, Pp is the price of Ford automobiles, Pg is the price of gasoline, A is the amount of advertising for Chevrolets, and Pj is credit incentives to purchase Chevrolets. Indicate whether you expect each independent or explanatory variable to be directly or inversely related to the quantity demanded of Chevrolets and the reason for your expectation.
2. Suppose that GM's Smith estimated the following regression equation for Chevrolet automobiles:
Qc = 100,000 - 100Pc + 2,000iV + 50/ + 3QPF -1,000/>g + 3A + 40,000/*,
where
Qc = quantity demanded per year of Chevrolet automobiles
Pc = price of Chevrolet automobiles, in dollars
N = population of the United States, in millions/ = per capita disposable income, in dollars
Pf = price of Ford automobiles, in dollars Pc = real price of gasoline, in cents per gallon A = advertising expenditures by Chevrolet,
in dollars per year
Pi = credit incentives to purchase Chevrolets, in percentage points below the rate of interest on borrowing in the absence of incentives
a) Indicate the change in the number of Chevrolets purchased per year (Qc) for each unit change in the independent or explanatory variables,
b) Find the value of Qc if the average value of Pc = $9,000, N = 2 ...