Microeconomics help

[desi112]

hello,
I require a little direction with a problem in the back of the book:

Its to do with demand curve analysis and cross-price elasticisty

I'm given a Qd, or a demand curve analysis for Ford

along with alpha (constant) and a bunch of betas (gmc, honda....) and the beta for mainting a ford.

The next two pieces of info I have: the quantity of fords sold and the price of a gmc.

How the hell do i get a cross price elasticity between ford and gmc?

Thanks in advance!

[jonnycat]

http://economics.about.com/cs/micfro...ss_price_d.htm

[Unknown303]

What a rookie.

[desi112]

Originally posted by jonnycat
http://economics.about.com/cs/micfro...ss_price_d.htm

I was never given the old prices, onlything I have is the units of ford sold and hte price per unit of chev.

Could you help me out!

Thanks!

[jmintz]

Originally posted by Unknown303
What a rookie.

First years gonna be first years. It's easy to sit back and laugh at first years as 4th year students but we were probably the same back then.

[desi112]

early morning bump, anyone?

[flipstah]

Can you be more specific? Your post is very vague.

[desi112]

Originally posted by flipstah
Can you be more specific? Your post is very vague.

I'll try man, I just looking for direction as its for marks so I don't wanna put the question up:

Qd= 5000+B1(price of ford) + B2(price of gmc) + B3 (price of toyota) + B4 (price of honda) +B4 (cost of maintaining a ford) +error

Qd is the demand for ford
B here is beta

I have values for all the Betas. I am given the price of a GMC and the quantity of Fords.

What I need to figure out is the cross-price elasticity between ford and GMC

I know E = Change in demand for ford/Change in price for GMC

How would i proceed?

TIA

[themack89]

I'll take a gander but I could be wrong..

Qd= 5000+B1(price of ford) + B2(price of gmc) + B3 (price of toyota) + B4 (price of honda) +B4 (cost of maintaining a ford) +error

transform model, didn't include error term because often in multiple and simple linear regression you assume E(e) = 0 and residuals are normally distributed.

ln(Qd) = B0 + B1ln(PF) + B2ln(PG) + B3ln(PT) + B4ln(PH) + B5ln(MAINT)

ln(Qd) = B0 + B1ln(A*PF) + B2ln(A*PG) + B3ln(A*PT) + B4ln(A*PH) + B5ln(A*MAINT)

ln(Qd) = B0 + B1ln(PF) + B2ln(PG) + B3ln(PT) + B4ln(PH) + B5ln(MAINT) + (B1 + B2 + B3 + B4 + B5)ln(A)

B1 + B2 + B3 + B4 + B5 = 0

B2 = -B1 - B3 - B4 - B5

ln(Qd*) = B0 + B1ln(PF*) + (-B1-B3-B4-B5)ln(PG*) + B3ln(PT*) + B4ln(PH*) + B5ln(MAINT*)

ln(Qd*) = B0 + B1[ln(PF*) - ln(PG*)] + B3[ln(PT*) - ln(PG*)] + B4[ln(PH*) - ln(PG*)] + B5[ln(MAINT*) - ln(PG*)]

ln(Qd*) = B0 + B1ln(PF* / PG*) + B3ln(PT* - PG*) + B4ln(PH* - PG*) + B5ln(MAINT* - PG*)

From this point what you should have, I "think", is effective all of your variables written in terms of PG (price of GMC). With this you have your B1 coefficient which should read as the change in Price of Ford per change in Price of GMC.

I've never done cross price elasticity so I might leave the next step up to you... does this help at all?

*Edit im going out for dinner.. I want to come back and help you with this because it helps me to try and apply what I'm learning.

[Cos]

.

[desi112]

Originally posted by themack89
I'll take a gander but I could be wrong..

Qd= 5000+B1(price of ford) + B2(price of gmc) + B3 (price of toyota) + B4 (price of honda) +B4 (cost of maintaining a ford) +error

transform model, didn't include error term because often in multiple and simple linear regression you assume E(e) = 0 and residuals are normally distributed.

ln(Qd) = B0 + B1ln(PF) + B2ln(PG) + B3ln(PT) + B4ln(PH) + B5ln(MAINT)

ln(Qd) = B0 + B1ln(A*PF) + B2ln(A*PG) + B3ln(A*PT) + B4ln(A*PH) + B5ln(A*MAINT)

ln(Qd) = B0 + B1ln(PF) + B2ln(PG) + B3ln(PT) + B4ln(PH) + B5ln(MAINT) + (B1 + B2 + B3 + B4 + B5)ln(A)

B1 + B2 + B3 + B4 + B5 = 0

B2 = -B1 - B3 - B4 - B5

ln(Qd*) = B0 + B1ln(PF*) + (-B1-B3-B4-B5)ln(PG*) + B3ln(PT*) + B4ln(PH*) + B5ln(MAINT*)

ln(Qd*) = B0 + B1[ln(PF*) - ln(PG*)] + B3[ln(PT*) - ln(PG*)] + B4[ln(PH*) - ln(PG*)] + B5[ln(MAINT*) - ln(PG*)]

ln(Qd*) = B0 + B1ln(PF* / PG*) + B3ln(PT* - PG*) + B4ln(PH* - PG*) + B5ln(MAINT* - PG*)

From this point what you should have, I "think", is effective all of your variables written in terms of PG (price of GMC). With this you have your B1 coefficient which should read as the change in Price of Ford per change in Price of GMC.

I've never done cross price elasticity so I might leave the next step up to you... does this help at all?

*Edit im going out for dinner.. I want to come back and help you with this because it helps me to try and apply what I'm learning.

Thank u, I will try this when I get home and report back really appreciate the help

And cos u r right, I just for the life of me could not answer thus questiom

[desi112]

.

[triplep]

What I would do is figure out the price of Ford first. Which with the information given, you can.

Next I would keep the price of Ford constant and have the price of gm as my variable.

And Set my Qd to a different number?

Something along those lines, I'd have to look into it a little further.