The price elasticity of demand for gasoline is estimated to be -0.2. T

The price elasticity of demand for gasoline is estimated to be -0.2. Two million gallons are sold daily at a price of $3. Use this information to calculate a demand curve for gasoline assuming it is linear.

What will be an ideal response?

ANSWER

Elasticity = slope (p/Q), -0.2 = slope (3/2).
The slope equals -0.133.
Thus, Q = a – 0.133p or 2 = a – 0.133(3).
Solving yields a = 2.399. The demand curve is Q = 2.399 – 0.133p (where Q is expressed in million gallons).