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Unformatted text preview: Elasticity and Market Demand. Demand Elasticity. A demand elasticity is a (unit free) measure of the (proportional) responsive- ness of quantity demanded to a change in price or income. (Own) price elasticity of demand for commodity i : e ii ( P, I ) = D i ( P, I ) P i P i D i ( P, I ) = ln D i ( P, I ) ln P i . Discrete approximation: e ii ( P, I ) = X i P i P i X i = X i /X i P i /P i = percentage change in X i percentage change in P i , holding income and all other prices fixed. e ii ( P, I ) 0 unless i is a Giffen good. Demand for a (non-Giffen) commodity i is elastic if | e ii ( P, I ) | > 1 unit elastic if | e ii ( P, I ) | = 1 inelastic if | e ii ( P, I ) | < 1. If demand for commodity i is elastic , P i- P i X i P i- P i X i unit elastic , P i- P i X i constant P i- P i X i constant inelastic , P i- P i X i P i- P i X i ....
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- Spring '10
- Price Elasticity