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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 ) = Δ X i Δ P i P i X i = Δ X i /X i Δ 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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This note was uploaded on 10/05/2010 for the course ECON 104A taught by Professor Thomas during the Spring '10 term at UC Riverside.
- Spring '10
- Price Elasticity