Suppose that an economist has been able to gather data on the relationship between demand and price for a particular product. After analyzing scatterplots and using economic theory, the economist decides to estimate an equation, Q=aPb,where Qis quantity demanded and P is price. An appropriate regression analysis is then performed, and the estimated parameters turn out to be a=1,000and b=-1.3. Now consider two scenarios: (1) the priceincreases from $10 to $12.50 and (2) the price increases from $20 to $25.a. Write out the log-log regression model.

b. Do you expect the percentage decrease in demand to be the same in Scenario 1 as in Scenario 2? Why or why not?

c. What is the expected percentage decrease in demand in Scenario 1; in Scenario 2.