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Developing a Linear Demand Function

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Task: Develop a linear demand function for the following data:
Price elasticity = -0.50
Income elasticity = 1.5
Price per gallon = $3.50
Consumption = 10 million barrels per day
Income = $12 trillion.

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Solution Summary

This solution illustrates how to develop a linear demand function with the help of the information provided.

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Let the demand function be Q=a+bP+cI
Where P=Price per gallon (in dollars)
I=income (in trillion dollars)
Q=consumption/demand (million barrels)
a,b,c are constants

We need to find the values of a,b and c to ...

Solution provided by:
Lokesh Jain, MSc
Education
  • BEng (Hons) , Birla Institute of Technology and Science, India
  • MSc (Hons) , Birla Institute of Technology and Science, India
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