Cross Price Elasticity of Demand

Cross Price Elasticity of Demand - Suppose that: Py1 =...

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Unformatted text preview: Suppose that: Py1 = $1.00 and Qx1 = 100 Py2 = $1.50 and Qx = Demand (3) Calculation of Cross Price Elasticity2of 120 Suppose that: of Cross $1.00Elasticity of= 100 Calculation Py1 = Price and Qx1 Demand Suppose that: y2 = $1.50 and Qx 100 120= $1.50 and P Py1 = $1.00 and Qx1 = 2 = Py2 16 When there are “big” percentage changes in prices and quantities, one can calculate in arc cross-price elasticity of When there are “big” percentage changes anprices and quantities, one can cdemand: arc cross-price elasticity of demand: alculate an 19 When there are “big” percentage changes in prices and quantities, one can calculate an arc cross-price elasticity of demand: Cross-Price Elasticity of Demand The cross-price elasticity of demand is Cross-Price Elasticity of Demand The cross-price elasticity of demand is Suppose that Qx= 6 - 1 Px + 2 Py + .002 M, where Px = $1 and M = $2000. What is the income elasticity of demand when Py = $2? Suppose that Q Px $1 Py x + 2 Py = .002 in where Px = $1 Answer: Substituting x ==6 -, 1 P= $2 and M + $2,000M,the demand equation andgives= $2000. What is the income elasticity of demand when Py M Qx = 14. From the definition above, = $2? Answer: Substituting Px = $1, Py = $2 and M = $2,000 in the demand equation gives Qx = 14. From the definition above, . = $2? Answer: Substituting Px = $1, Py = $2 and M = $2,000 in the demand equation gives Qx = 14. From the definition above, . Note that , so . © Bryan L. Boulier, 2010. All rights reserved. ...
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This note was uploaded on 02/17/2011 for the course ECON 101 taught by Professor Fon during the Spring '06 term at GWU.

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