Please show math for every step The demand curve for chicken

Please show math for every step.

The demand curve for chicken biscuits is estimated to be:

Where x represents chicken biscuits, y represents chocolate milk and M represents income.

a. Are chicken biscuits elastic or inelastic? Explain. What is the relationship between chicken biscuits and chocolate milk? Explain. Are chicken biscuits a normal or inferior good? Explain.

b. If income drops by 2%, holding constant the price of chocolate milk, what percentage change in the price of chicken biscuits is required to maintain the same quantity demanded for chicken biscuits?

c. If the price of chocolate milk increases by 4%, holding constant income, what percentage change in the price of chicken biscuits is required to maintain the same quantity demanded for chicken biscuits?

Solution

a)

Since the coefficient of parameter of Px is -4, it implies that a 1% rise in price of chicekn, leads to a 4% fall in its quantitiy demanded. Since this is greater than 4, the demand is elastic.

Relation between chicken biscuits and chocolate milk is negative, which means that the goods are complements.

Chicken biscuits are a normal good, since they are positively related to income.

b)

If income drops by 2%, quantity of chicken falls by 1.5*2 = 3%

In order to prevent the demand from falling by 3%, price of chicken biscuits should decrease by 3/0.75 = 4%

c)

If price of chocolate milk increases by 4%, quantity of chicken falls by 4*4 = 16%

In order to prevent the demand from falling by 16%, price of chicken biscuits should decrease by 16/0.75 = 21.3%