I need feedback on my below Reponses (1 5), there are supposed to be expectations Several variables are important in determining gasoline demand First and foremost, of course, is the own price of gasoline Also important are income, prices for cars (gasoline and cars are complements), and prices of substitutes for cars (public transportation) The variables are defined as follows Q G d total quantity demanded for gasoline, measured in billions of gallons, P G own price of gasoline, as measured by the price index for gasoline, M per capita real disposable income, P nc price index for new cars, P uc price index for used cars, P pt price index for public transportation Thus, the general form is Q G d (P G , M, P nc , P uc , P pt ) Do you expect P G , M, P nc , P uc , and P pt to be positively or negatively related to Q G d Explain (Note your expectations may not be matched by your regression results later on ) (5 points) or Brief Explanation Reasoning based on Demand Theory (a) P G The own price of gasoline will be negatively related to total gasoline consumption due to the law of demand (b) M Per capital real disposable income, so when M increases people will spend more on gasoline making it a positive (c) P nc The price in new cars which means when it falls, demand for new cars will increase Making PUC and QGD are negatively related (d) P uc Is the price index of used cars when Puc falls demand for used cars increase and therefore gasoline demand will increase making it a negative (e) P pt Ppt is the price for public transportation when ppt increases the cost of traveling in the public transportation system increases This will lead to a fall in demand for public transport and an increase in the use of private vehicles this will cause a higher gasoline consumption demand

The Answer is in the image, click to view ...

Answered step by step

Verified Expert Solution

Link Copied!

Question

1 Approved Answer

Posted on Jun 29, 2024

I need feedback on my below Reponses (1-5), there are supposed to be expectations. Several variables are important in determining gasoline demand. First and foremost,

I need feedback on my below Reponses (1-5), there are supposed to be expectations.

Several variables are important in determining gasoline demand. First and foremost, of course, is the own - price of gasoline. Also important are income, prices for cars (gasoline and cars are complements), and prices of substitutes for cars (public transportation). The variables are defined as follows:

Q_G^d = total quantity demanded for gasoline, measured in billions of gallons,

P_G = own-price of gasoline, as measured by the price index for gasoline,

M = per capita real disposable income,

P_nc= price index for new cars,

P_uc= price index for used cars,

P_pt = price index for public transportation.

Thus, the general form is:

Q_G^d =(P_G, M, P_nc, P_uc, P_pt).

Do you expect P_G, M, P_nc, P_uc, and P_pt to be positively or negatively related to Q_G^d? Explain. (Note: your expectations may not be matched by your regression results later on!) (5 points)

+ or - Brief Explanation/Reasoning based on Demand Theory

(a) P_G: The own price of gasoline will be negatively related to total gasoline consumption due to the law of demand.

(b) M: Per capital real disposable income, so when M increases people will spend more on gasoline making it a positive.

(c) P_nc: The price in new cars which means when it falls, demand for new cars will increase. Making PUC and QGD are negatively related.

(d) P_uc: Is the price index of used cars when Puc falls demand for used cars increase and therefore gasoline demand will increase making it a negative.

(e) P_pt: Ppt is the price for public transportation when ppt increases the cost of traveling in the public transportation system increases. This will lead to a fall in demand for public transport and an increase in the use of private vehicles this will cause a higher gasoline consumption demand.