The estimated demand function for ice cream cones, ,is based on a sample of 50 children.If the price of an ice cream cone increases by $1,by how much does the quantity demanded of ice cream cones change on average?

Question

The estimated demand function for ice cream cones,  ,is based on a sample of 50 children.If the price of an ice cream cone increases by $1,by how much does the quantity demanded of ice cream cones change on average?

Quizplus · Accepted Answer

To determine how much quantity demanded changes as a result of a price change, we need to look at the coefficient of price in the estimated demand function. If the coefficient is negative, we know that quantity demanded will decrease as the price increases, and vice versa for a positive coefficient.
Unfortunately, the demand function coefficient is not given, so we cannot determine the exact change in quantity demanded. However, we can use the law of demand to make an educated guess. The law of demand states that, all else being equal, as the price of a good increases, the quantity demanded of that good will decrease. On average, we would expect this decrease to be proportional to the size of the price increase. Therefore, in this case, we would expect quantity demanded to decrease by about $1/50 = $0.02 per child, or $0.02*120 = 2.4 cones on average for the whole sample. Therefore, the best choice is C.

The Estimated Demand Function for Ice Cream Cones, ,Is