Microeconomics Elasticity

Microeconomics Elasticity - (E I ) E I = % Q % I Type of...

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` ELASTICITIES ECON 201 Dr. Vanderporten I: PRICE ELASTICITIES OF DEMAND Price Type Change in Product Elast. Elast. Price TR %∆Q Q o Q 1 Cigarettes 0.45 Inel. P up by 10% Up -4.5% 100 95.5 Movies 1.00 Unit. P down by 5% Zero +5% 100 105.0 China 2.00 Elast. P up by 8% Down -16% 100 84.0 Demand Elasticity Short-run: 0.45 for Cigarettes Long-run: 0.80 E X = -% Qx = - Qx/mean of Q % Px Px/mean of P P Q $2.00 109 E= - -18/100 = 2.5 (0.18) = 0.45 3.00 91 100/250 Determinants of Price Elasticity 1. Close Substitutes a. Many: Elastic b. None: Inelastic 2. Share of Income a. Large: Elastic b. Small: Inelastic 3. Time Frame a. Short-run: Inelastic b. Long-run: Elastic 4. Luxury vs. Necessity a. Luxury : Elastic b. Necessity: Inelastic 5. Narrowness of Definition a. Narrowly defined: Elastic
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b. Broadly defined: Inelastic II. Income Elasticity of Demand
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Unformatted text preview: (E I ) E I = % Q % I Type of Elasticity Significant Conditions Elasticity Type of Good-E I > 0 Normal-E I < 0 Inferior Examples Elasticity Example E I = 0.2 Inferior CTA E I = 0 Zero Salt E I = 0.9 Normal Clothing III. Cross Elasticity of Demand : Related Goods: E ( Q ( X ) , P Y ) Where Y is related good E XY = % Q X % P Y If E XY > 0, X is a substitute for Y. If E XY < 0, X is a complement for Y. Example: (1) Suppose X = chicken and Y = hamburger meat. E XY = +0.5. (2) Suppose X = catsup and Y = hamburger meat. E XY = -0.3. Multiple Factors Affecting Demand For Tropicana Orange Juice (Good X) E % Q X % P X = 5% -2.8 % I = 10% 1.2-0.4 % P Y = 4% -0.5 0.2...
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Microeconomics Elasticity - (E I ) E I = % Q % I Type of...

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