Starting with the estimated demand function for Chevrolets given in problem 2, a

Question

Starting with the estimated demand function for Chevrolets given in problem 2, assume that the average value of the independent variable changes to N=225 million, I=12,000, Pf=10,000, Pg=100cents, A=250,000 and Pi =0. (i.e., the incentives are phase out). (a) Find the equation of the new demand curve for Chevrolets. See below .....Changes to problem P3(a): Substitute the given value of independent variables into the equation in problem 2 and show the new equation as Qc= a – 100Pc, a is a number.

Explanation / Answer

Qc= 100,000-100Pc+ 2,000N + 50I + 30Pf - 1,000Pg +3A + 40,000Pi

QC=100,000-100PC+2000(225) +50(12000) +30(10,000)-1000(100) +3(250000) +40,000(0)

QC=2,100,000-100PC
Qc= quantity demanded per year of Chev. Autos.
Pc = price of Chev. autos, in dollars
N= population of the US, in millions
I = per capita disposable income, in dollars
Pf = price of Ford autos, in dollars
Pg = real price of gasoline, in cents per gallon
A = advertising expenditures by Chev. in dollars per year.
Pi = credit incentives to purchase chev. in percentage points below the rate of interest on borrowing in the absence of incentives.

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