Week 2 Project - ECO2071.docx - Questions 1 Define the...

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Questions: 1. Define the price elasticity of demand? What information does it provide? How is it calculated? The price elasticity of demand is a measure of how much the quantity demanded of a good, responds to a change in the price of that good, computed as the percentage change in quantity demanded divided by the percentage change in price. The formula used to calculate the price elasticity of demand is: the symbol Q 1 represents the new quantity demanded that exists when the price changes to P 1 . In this formula, the price elasticity of demand will always be a negative number because of the inverse relationship between price and quantity demanded. 2. Define the income elasticity of demand? What information does it provide? How is it calculated? Income elasticity of demand measures the reaction of the quantity demanded for a good or service to a change in the income of the people demanding the good. It is calculated as the ratio of the percentage change in quantity demanded to the percentage change in income . 3. Define the cross-price elasticity of demand? What information does it provide? How is it calculated?
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