The price elasticity of demand for gasoline is estimated to be -0.2. Two million gallons are sold daily at a price of $1. Use this information to calculate a demand curve for gasoline assuming it is linear
What will be an ideal response?
Elasticity = slope (p/Q), -0.2 = slope (1/2 ).
The slope equals -0.4.
Thus Q = a - 0.4p or 2 = a - 0.4(1).
Solving yields a = 2.4. The demand curve is Q = 2.4 - 0.4p (where Q is expressed in million gallons).
Economics
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