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Unformatted text preview: o Constant elasticity demand curves: Q = aP-b , = -b Total revenue = PQ Income Elasticity of Demand: (dQ/dI)(I/Q) Cross-Price Elasticity of Demand: (dQ i /dP j )(P j /Q i ) o If > 0, higher price of good j increases demand for good i (demand substitutes, like Coke and Pepsi) o If < 0, higher price of good j decreases demand for good i (demand complements, like cereal and milk) Greater elasticity in short run than in long run 1 st derivative: marginal impact 2 nd derivative < 0: marginal impact is falling f ii : shows how marginal influence of x i on y changes as the value of x i increases o negative value for f ii indicates diminishing marginal effectiveness o f ij indicates marginal effectiveness of x i changes as x j increases...
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- Spring '09