The following data show the demand for an airline ticket dependent on the price of this ticket. For the assumed cubic and log-log regression models, Demand = β₀ + β₁Price + β₂Price²+ β₃Price³+ ε and ln(Demand) = β₀ + β₁ln(Price) + ε, the following regression results are available. Which of the following is the price elasticity of the demand found by the log-log model? A) 26.3660 B) −3.2577 C) 0.9852 D) 0.2071

Question

Quizplus · Accepted Answer

The price elasticity of demand can be calculated from the coefficient of ln(Price) in the log-log model. Therefore, the price elasticity of demand is given by the coefficient β₁, which is −3.2577 in this case. Therefore, the correct choice is B, −3.2577.

The Following Data Show the Demand for an Airline Ticket