Open the equation editor dialog for the variable "effect price demand".
| Ø | Select the Equation edit tool. |
| Ø | Click on effect price demand. |
The list of available functions is displayed on the left side of the dialog. If you click on any item in the list it will be inserted into the equation text area. The up and down arrow keys will move through the list.
Click on any function to include it in the equation box.
| Ø | Click on EXP in the list of functions, scrolling if necessary. |
In the editing window you should see EXP( {x} ) with the {x} highlighted.
| Ø | Press the - key or click on - on the buttons. |
| Ø | Click on the Variables tab and click on the variable demand elasticity. |
| Ø | Press the * key or click on * on the button. |
| Ø | Click on the Functions tab. |
| Ø | Click on LN in the list of function (pressing the L key is a good shortcut to get there) and press Enter. |
| Ø | Click on the Variables tab. |
| Ø | Press the / key or click on the / button. |
| Ø | Click on reference price in the variable list. |
Your equation should read:
| EXP(-demand elasticity*LN(price/reference price)) |
You can always type this in instead of working through the list of functions and sometimes this is easier to do.
A couple of notes on this equation are important. In this equation LN is the function for a natural logarithm and EXP(x) is the function that takes the special number e (about 2.72) to the power x. This equation could also be written as either one of:
| POWER(price/reference price,-demand elasticity*) |
| (price/reference price)^(-demand elasticity) |
(In fact, for this equation there are three additional formulas that involve switching price and reference price then changing the sign on demand elasticity.)
This equation is a standard constant elasticity demand curve. The use of price/reference price is a normalization that also prevents any units errors from occurring. We will discuss normalizations further in the next chapter.
Independent of which functions are used, the method for entering them is the same. You can either type them in, or select them from the list.
