Chapter 5

Chapter 5 - Income elasticity of demand: % change in...

Info iconThis preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
Chapter 5: Elasticity Price elasticity of demand: % change in quantity/ % change in price * Depends on substitutability, necessary vs luxury, definition of market ( more specific = more elastic) , time (more elastic in the long run) Midpoint method : (Q2-Q1)/ Average of Q1+Q2 (P2-P1)/Average Price Elastic > 1 $up, Revenue down Inelastic < 1 $up, R up Unit elastic = 1 R is constant regardless of P Total revenue = PxQ Demand is elastic at high prices, inelastic at lower prices.
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Background image of page 2
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: Income elasticity of demand: % change in quantity over % change in income * Positive if its normal goods, negative if its inferior goods If demand is inelastic, an increase in price WILL increase total revenue. Cross price elasticity of demand: % change in Q1/% change in P2 *Positive for substitutes, negative for complement Long run supply is always more elastic Supply is more elastic in the bottom, inelastic at top...
View Full Document

Page1 / 2

Chapter 5 - Income elasticity of demand: % change in...

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online