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1.  Suppose using household information we can estimate the following demand function:

                             Q_x = 60- 5P_x + 2.4 P_y – 4P_z + 10I

where Qx = is the quantity of raincoats demanded during a one-year period measured in thousands of units, P_x = the price of a rain coat, P_y= price of a jacket, P_z represents the price of an umbrella, and I is the average annual income of prospective buyers, measured in thousands of dollars.

              Further, based on current information, we have the following values for prices and income:

              P_x = $60, P_y= $50, P_z = $20, and I = $40.

              a)  Use the given values (above) for other prices (except for the price of raincoat) and income

                   to calculate the following demand   equation for raincoat using this format:

         Q_x = A + b₁P_x (Use the information to get the value for A and b₁).

              b) At the current price for the raincoat, how many raincoats will be demanded

c)  Use the formula for point elasticity [(e = (dQ/dP) x (P/Q)] and the information you have from above to calculate the point elasticity of demand, what does it tell you?

 d)  Use the same information to calculate the Line (Arc) elasticity e_arc = [(Q₁ – Q₂)/(P₁ – P₂]) x    [(P₁ + P₂)/(Q₁ + Q₂)].

             e)  Use the Point elasticity formula: e_I = (DQ_d/DI) (I/Q_d) to calculate the income elasticity,

     what does it tell you?

              f)  Use the Point elasticity formulas: e_xy =    (DQ_x /DP_y) (P_y/Q_x) and e_xz= (DQ_x /DP_z) (P_z/Q_x) to       

to calculate the cross-price elasticity for jacket and umbrella, what does it tell you?

              g)  Using the information in (a), can you indicate how price change can impact the revenue?

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