Suppose you have the following estimated linear demand equat

Suppose you have the following estimated linear demand equation for beef:

Q = 1.06 - 0.5P + 0.37Pp+0.34Pc+0.7I

Where,

Q= consumption of beef (000 pounds)
P= real retail price of beef per pound ($)
PP= real retail price of pork per pound ($)
Pc = real retail price of Chicken per pound ($)
I= real disposable income per capita ($)

Initial values of each variables are,

Q=40, P=$3.99,, Pp=$3.29, Pc=$1.99, and Income (INC)= $56 (in 000 $).

Calculate the price elasticity of demand for beef.

Solution

Price elasticity (point elasticity) = dQ/dP x P/Q

PE = - 0.5 x 3.99/40 = -0.05

abs (PE) = 0.05