elasticity_060208

# elasticity_060208 - Elasticity Handout EEP 162-Spring 2006...

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Elasticity Handout EEP 162-Spring 2006 February 8, 2006 1. Conditional Input Demand: x k = g k ( w 1 ,.... ,w N ,y ) (a) Conditional own price elasticity: c ε i i = w i x i · dg i ( · ) dw i c ε i i < 0 Must be non-positive. • | c ε i i |≤ 1 inelastic • | c ε i i | > 1 elastic (b) Conditional Cross price elasticity: c ε i j = w j x i · dg i ( · ) dw j c ε i j < 0 complements c ε i j > 0 substitutes (c) Conditional Output elasticity: c ε i y = y x i · dg i ( · ) dy c ε i y > 0 normal input c ε i y < 0 inferior input 1

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2. Unconditional Input Demand x k = h k ( w 1 ,...,w N ,p ) (a) Unconditional Own Price Elasticity ε i i = w i x i · dh i ( · ) dw i c ε i i 0 Must be non-positive. • | ε i i | < 1 inelastic • | ε i i | > 1 elastic (b) Unconditional Cross Price Elasticity ε i j = w j x i · dh i ( · ) dw j ε i j < 0 complements ε i j > 0 substitutes (c) Unconditional Input Demand Output Price Elasticity
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elasticity_060208 - Elasticity Handout EEP 162-Spring 2006...

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