Using Excel, Best Paints estimates the log- linear weekly demand function for their gallon sized paints to be ln Q^d = 16.23 - (1.85 × ln P). At a price of $20, what is the price elasticity of demand? A)0.0008 B)1.85 C)2.15 D)0.05

Question

Quizplus · Accepted Answer

The price elasticity of demand in a log-linear demand function like ln Q = a - b ln P is given directly by the coefficient of ln P, which in this case is -1.85. The negative sign indicates the inverse relationship between price and quantity demanded, but the elasticity value is 1.85.

Using Excel, Best Paints Estimates the Log- Linear Weekly Demand