B200.F08.W07.Eff.GovPol.PowerPoint

# B200.F08.W07.Eff.GovPol.PowerPoint - Efficiency Government...

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Efficiency & Government Policies BUAD 200 Chapters 7,6

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Determinants of Price Elasticity of Demand Number & Closeness of Substitutes. Information about price change and availability of substitutes. Percentage of Income Spent on good. Period of time: Second Law of Demand Second Law of Demand : Demand is more elastic over a longer period of time.
Other Elasticity's: a Measure of responsiveness of Quantity to a Change in some other factor

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Income Elasticity: Measure of responsiveness of Quantity to a Change in Income E dI = % Δ Q d / % Δ income E dI = 100 * ΔQ/Q = I * ΔQ 100 * ΔI/I Q * ΔI Normal Goods: Positive Clothing: .95: 10% income → 9.5% Stereo: 27.2: 10% income → 27.2% Increase may be Quantity or Quality Inferior Goods: Negative
Cross Price Elasticity: Measure of responsiveness of Quantity to a Change Price of other good E xy = % Δ Q x / % Δ P y E dI = 100 * ΔQ x /Q x = P y * ΔQ x 100 * ΔP y /P y Q x * ΔP y Substitutes: Positive Complements: Negative

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Uses of Cross Price Elasticity Magnitude of cross price elasticity reflects closeness of substitutes or complements Able to identify your closest competitors Courts use cross-price to measure monopoly power
Transaction Costs of Exchange Information Costs Search Costs Quality Identification Cost Negotiating Costs : Cost of agreeing on what and how much will be exchanged Transportation Costs : Cost of moving goods between parties

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Market Efficiency Chapter 7
\$ P x \$ 10 \$ 9 \$ 8 \$

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B200.F08.W07.Eff.GovPol.PowerPoint - Efficiency Government...

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