Chapter 5 Review

# Chapter 5 Review - Chapter 5 Measurement and Interpretation...

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Chapter 5: Measurement and Interpretation of Elasticities LEARNING OBJECTIVES Define, derive, and interpret an own-price elasticity of demand coefficient. Define, derive, and interpret an income elasticity of demand coefficient. Define, derive, and interpret a cross-price elasticity of demand coefficient. Discuss the factors influencing these three types of elasticity. Understand the differences between these elasticities between the short run and the long run. Discuss the implications of an inelastic demand versus an elastic demand at all levels of the food and fiber system. CHAPTER SUMMARY The major points made in the chapter may be summarized as follows: 1. The own price elasticity of demand measures the percentage change in the quantity demanded for a good given a 1% change in price. If this elasticity is greater than 1, demand is said to be elastic (i.e., the percentage change in quantity exceeds the percentage change in price). If this elasticity is less than 1, demand is said to be inelastic (i.e., quantity changes by a smaller percentage than price). If this elasticity is equal to 1, demand is said to be unitary elastic (i.e., quantity changes by the same percentage as price).

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• Spring '08
• Capps

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