Suppose that we are interested in estimating price and income elasticities for a single commodity, say good 1. The theory of consumer behavior suggests that the quantity demanded of a good depends upon the good’s own-price, prices of other goods, and income. Thus, it is reasonable to assume that the quantity demanded of good 1, Q1, depends upon P1, P2, P3, and I. To estimate the relationship among these variables, a specific functional form must be chosen. An often used functional form for a single demand equation is the double logarithmic specification
Suppose that we are interested in estimating price and income elasticities for a single commodity, say good 1. The theory of consumer behavior suggests that the quantity demanded of a good depends upon the good’s own-price, prices of other goods, and income. Thus, it is reasonable to assume that the quantity demanded of good 1, Q1, depends upon P1, P2, P3, and I. To estimate the relationship among these variables, a specific functional form must be chosen. An often used functional form for a single demand equation is the double logarithmic specification
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