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March 12th, 2014, 11:43 AM   #1
Joined: Mar 2014

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Calculate Price and income elasticity's

I am supposed to calculate the price elasticity of demand and the income elasticity of demand from the demand equation below. The problem is that I don’t know how to calculate them when I, P, and Q are unknowns. Or are the elasticity’s simply just the coefficients of P an I?

I would really appreciate if someone could help me out here.

Demand equation:
Q = a – bP + cI + dT

Q = 514.2669 – 242.971P + 1.224164I + 2.931228T

Elasticity formulas:
Price elasticity of demand: b(P/Q)

Income elasticity: c(I/Q)

Q = Demand estimation
P = Price
I = Income
T = Temperature
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