Module 4: Direct Estimation of Demand Schedules

Question 1

What is the general formula for elasticity of a linear demand?

Answer 1

Ed= (delta q/delta p)* p/q

Question 2

What are the properties to linear demands?

Answer 2

1) constant slope
2) varying elasticity along curve
3) crosses x and y axes (at choke price, and non-infinite quantity when price is zero)

Question 3

What are the properties to log-log demands?

Answer 3

1) slope varies along curve
2) constant elasticity
3) Asymptotes at p = 0 and q = 0

Question 3

Estimate the linear demand curve given the following.

Ed=-0.2
price = $25
quantiy = 6

Answer 3

q = 7.2 - 0.048p

alpha1 = -0.2(6/25) =-0.048
6=alpha0 +0.04825 = 7.2

Question 4

What is the choke price for the following equation?

q = 7.2 - 0.048p

Answer 4

$150

0=7.2-0.048p then solve

Question 5

What is consumer surplus when price is $25?

p = 150-20.83q

Answer 5

$375

.5(b)(h) = .5(6)*(150-25)

Question 6

What is the general formula for elasticity of demand for log-log models?

Answer 6

B1 = Ed

q = B0p^B1)=
ln(q)=ln(B0)+B1ln(p)

Question 7

Estimate the log-log demand curve given the following information

Ed = -0.2
price = $25
quantity = 6

Answer 7

ln(q) = ln(11.42)-0.2(ln(p))

6 = B0(25)^(-0.2) = 11.42

Question 8

What is the formula for change in CS in log-log demand modules?

Answer 8

deltaCS = (p1q1-p2q2)/(1+B1)

Question 9

Find the change in consumer surplus for the following model.

ln(q) = ln(11.42)-0.2(ln(p))

When price falls from $25 to $10.

Answer 9

$97.5

((256)-(107.2))/(1-0.2)=97.5

Question 10

Find linear demand given two points. Where,

price $25 -> 6 visits
price $10 -> 7 visits

Answer 10

q = 7.66-0.0667p

(x1-x2)/(y1-y2) = (6-7)/(25-10) =-0.0667
6 = alpha0-0.0667(25)=7.66

Question 11

Find log-log demand given two points. Where,

price $25 -> 6 visits
price $10 -> 7 visits

Answer 11

ln(q)=2.333-0.1682ln(p)

ln(6/7)=B1ln(25/10) =-0.1682
ln(6) = B0 -0.1682(25) = 2.333

Question 12

Define internal validity

Answer 12

Makes sure your internal sources are good.
i.e. did you use the right methodology? Is the paper you referenced valid? Did you use the right calculations

Question 13

Define exernal validity

Answer 13

Can your source be applied to what you are studying.
i.e. does it include similar characteristics such as area, population, time.