4.

A firm has estimated the following demand function for its product (2 points):

Q= 8 - 2P+ 0.10I+A

whereQis quantity demanded per month in thousands,Pis product price,Iis an index of consumer income, andAis advertising expenditures per month in thousands. Assume thatP= $10,I= 120, andA= 10. Use the point formulas to complete the elasticity calculations indicated below.

(i) Calculate quantity demanded.

(ii) Calculate the price elasticity of demand. Is demand elastic, inelastic, or unit elastic?

(iii) Calculate the income elasticity of demand. Is the good normal or inferior? Is it a necessity or a luxury?

(iv) Calculate the advertising elasticity of demand.