The demand for distilled spirits across all states in the United States was estimated to be Q = 1.27 – 0.037P + 0.000122I + 0.000242T.

1. The demand for distilled spirits across all states in the United States was estimated tobe Q = 1.27 – 0.037P + 0.000122I + 0.000242T. Q is yearly per capita quantitydemanded in that state measured in gallons, I is state per capita disposable income, and Tis total per capita expenditures by tourists in that state. Suppose that I = 16026 and T =$1,346, the mean levels for the United States. Given the above demand and these valuesof income and tourist spending:Compute the price elasticity of demand for distilled spirits at a prices of $60, $55, $50,…, $30 per gallon.Do high-price states have larger or smaller demand elasticities for distilled spirits?Relate this to what Chapter 3 says about the price elasticity as you move along a lineardemand curve.Suppose there is a state with annual per capita expenditures by tourists of T = $1,500.Will that state have a higher or lower price elasticity than the average? Can you explainwhy?

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