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#cfa #cfa-level-1 #economics #microeconomics #reading-13-demand-and-supply-analysis-introduction #study-session-4
That function was given by the simple linear expression Qdx=11.2−0.4Px . If we were to ask how sensitive quantity is to changes in price in that expression, one plausible answer would be simply to recognize that, according to that demand function, whenever price changes by one unit, quantity changes by 0.4 units in the opposite direction. That is to say, if price were to rise by $1, quantity would fall by 0.4 gallons per week, so the coefficient on the price variable (−0.4) could be the measure of sensitivity we are seeking.
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4.1. Own-Price Elasticity of Demand
cal household demand function for gasoline, assuming that the household’s income and the price of another good (automobiles) were held constant. It supposedly described the purchasing behavior of a household regarding its demand for gasoline. <span>That function was given by the simple linear expression Qdx=11.2−0.4Px . If we were to ask how sensitive quantity is to changes in price in that expression, one plausible answer would be simply to recognize that, according to that demand function, whenever price changes by one unit, quantity changes by 0.4 units in the opposite direction. That is to say, if price were to rise by $1, quantity would fall by 0.4 gallons per week, so the coefficient on the price variable (−0.4) could be the measure of sensitivity we are seeking. There is a fundamental drawback, however, associated with that measure. Notice that the –0.4 is measured in gallons of gasoline per dollar of price. It is crucially depende


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