Consider the following linear demand function where QD = quantity demanded, P =

Question

Consider the following linear demand function where QD = quantity demanded, P = selling price, and I = disposable income:

          QD = -36 -2.1P + .24I

The coefficient of P indicates that (all other things being held constant):

for a one percent increase in price, quantity demanded would decline by 2.1 percent

for a one unit increase in price, quantity demanded would decline by 2.1 units

for a one percent increase in price, quantity demanded would decline by 2.1 units

for a one unit increase in price, quantity demanded would decline by 2.1 percent

for a one percent increase in price, quantity demanded would decline by 2.1 percent

for a one unit increase in price, quantity demanded would decline by 2.1 units

for a one percent increase in price, quantity demanded would decline by 2.1 units

for a one unit increase in price, quantity demanded would decline by 2.1 percent

Explanation / Answer

Ans) for a one unit increase in price, quantity demanded would decline by 2.1 units

QD = -36 -2.1P + .24I

QD = K - 2.1P (-36 + 0.24I = Constant K)

So with one unit increase in price, quantity demanded would decline by 2.1 units

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