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Unformatted text preview: >> Elasticity Section 3: Other Demand Elasticities chapter 5 The quantity of a good demanded depends not only on the price of that good but on other variables. In particular, demand curves shift because of changes in the prices of related goods and changes in consumers incomes. It is often important to have a meas- ure of these other effects, and the best measures areyou guessed itelasticities. Specifically, we can best measure how the demand for a good is affected by prices of other goods using a measure called the cross-price elasticity of demand , and we can best meas- ure how demand is affected by changes in income using the income elasticity of demand . The Cross-Price Elasticity of Demand In Chapter 3 you learned that the demand for a good is often affected by the prices of other, related goodsgoods that are substitutes or complements. There you saw that a change in the price of a related good shifts the demand curve of the original good, reflecting a change in the quantity demanded at any given price. The strength of such a cross effect on demand can be measured by the cross-price elasticity of demand , The cross-price elas- ticity of demand between two goods measures the effect of the change in one goods price on the quantity demanded of the other good. It is equal to the percent change in the quantity demanded of one good divided by the percent change in the other goods price. defined as the ratio of the percent change in the quantity demanded of one good to the percent change in the price of the other....
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- Fall '06