Scenario 4.5:
The demand curve for grilled cheese sandwiches has been estimated using statistical techniques as follows:
log(Q) = -1.10 - 0.18 log(P) + 1.21 log(I) + 0.84 log(Ph)
where Q is the quantity of grilled cheese sandwiches
P is the price of grilled cheese sandwiches
I is income
Ph is the price of hamburgers
-See Scenario 4.5. If P = $1,000, the price elasticity of demand:

Question

Quizplus · Accepted Answer

The price elasticity of demand can be calculated using the formula:
E = (% Change in Quantity Demanded) / (% Change in Price)
However, since the demand equation is in logarithmic form, we need to use the logarithmic version of the formula:
E = (d ln Q) / (d ln P) = (dQ/Q) / (dP/P) = (dQ/dP) * (P/Q)
Substituting the values given in the demand equation, we get:
E = -0.18 * ($1,000/Q)
Since we don't have any additional information about the quantity demanded (Q), we cannot calculate the exact value of E. However, we can see that it is negative, indicating an inverse relationship between price and quantity demanded, and that it is less than 1 in magnitude, indicating that the demand for grilled cheese sandwiches is inelastic. Therefore, the best answer is C, which gives the coefficient of price elasticity in the demand equation.

Scenario 4.5: The Demand Curve for Grilled Cheese Sandwiches Has Been Estimated