ECON100A_8 - Elasticity x1=a-bp1 Ex1,p1= x1 p1 p1 x1...

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1/4/2008 1 Elasticity x 1 =a-bp 1 E x1,p1 = = -bp 1 /(a-bp 1 ) This is just an example, (for linear demand). It is not a formula for elasticity of demand in general . 1 1 1 1 x p p x X 1 P 1

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1/4/2008 2 Substitutes p 1 X 1 X 2 I/p 1 I/p 2 In other words, p 1 ↑→x 2 p 2 ↑→x 1 Tend not to combine these goods Note: Do not confuse with “perfect” substitutes 0 , 0 1 2 2 1 , , p x p x E E p 1 ↑→x 2
1/4/2008 3 Complements p 1 X 1 X 2 I/p 1 I/p 2 In other words, p 1 ↑→x 2 p 2 ↑→x 1 Tend to use these goods together Note: Do not confuse with “perfect” complements 0 , 0 1 2 2 1 , , < < p x p x E E p 1 ↑→x 2

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1/4/2008 4 Giffen good Top Ramen and Steak. Top Ramen 6 days a week, buy steak on Sunday. Price of Top Ramen↑ Consume Top Ramen 7 days a week because can no longer afford steak on Sunday. P T ↑→ X T !
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• Fall '07
• Babcock
• X1, Giffen good, giffen

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