Unformatted text preview: o Constant elasticity demand curves: Q = aPb , ε = b • Total revenue = PQ • Income Elasticity of Demand: (dQ/dI)(I/Q) • CrossPrice Elasticity of Demand: (dQ i /dP j )(P j /Q i ) o If ε > 0, higher price of good j increases demand for good i (demand substitutes, like Coke and Pepsi) o If ε < 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...
View
Full Document
 Spring '09
 sheflin
 Supply And Demand, constant elasticity demand, Unitary elastic demand, FII, Kimberly Zhang, bP Inverse demand

Click to edit the document details