Market Demand (from page 240)

where MD = market demand, AP = average price, INC = income

MD = 119.539 — 23.198AP + .029INC

If INC = $3716

MD = 227.303 — 23.198AP

If AP is $5

MD = 111.313 and

E_p = -23.198 (5/111.313) = -1.0420

Firm Demand (from page 240) - Note that this represents a single firm in the industry described above

where Q = firm demand, P = price of firm's product, INC = income, PC = price of competitor's product

Q = 15.939 — 9.057P + .009INC + 5.092PC

If INC = $3716 and PC = $4.86

Q = 74.130 — 9.057P

If P = $5

Q = 28.845 and

e_p = -9.057 (5/28.845) = - 1.569

Note that the Firm price elasticity of demand is greater (in an absolute sense) than the Market price elasticity of demand. This relationship usually holds because there are more good substitutes for the firm’s product than there are for the generic industry product.