Derive the demand curve for electricity

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Reference no: EM13517873

Consider the market for electricity. The monthly demand for electricity is given by:

Q = a + bP + cP_g + dI,

where Q is the quantity of electricity consumed per month, P is the price of electricity, P_g is the price of natural gas, and I is income.

a. Explain what sign you would expect the coefficients b, c and d to have.

b. Suppose you have the following information.

Variable	Description	Value
P	price of electricity	$0.10
Q	quantity demanded	1,200
P_g	price of natural gas	$0.15
I	income	$3,000
e_e	price elasticity of demand for electricity	-1.2
e_eg	cross-price elasticity of demand for electricity with respect to price of natural gas	0.20
e_I	income elasticity of demand for electricity	0.20

Derive the demand curve for electricity.

Reference no: EM13517873

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