ECO Supply and demand

ECO Supply and demand -...

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Elasticity of demand:  Elasticity of demand refers to Price elasticity of demand. It  responsiveness  demand of a goods with the change in price. Coefficient of Price Elasticity of demand = (E d )= (  % change in demand) / (% change in  price) Value of E d Interpretation E = 0 Perfectly inelastic demand  (Demand curve is  perpendicular to x-axis) -1 < E  < 0 Inelastic  demand E < -1 Elastic demand E = - ∞ Perfectly elastic  demand (Demand curve is parallel to x-axis) Cross Price- Elasticity of Demand:   This measures the responsiveness of the demand of a  goods  A to a price change of other goods B (even if price of A remains unchanged). Coefficient of Cross Price-Elasticity of Demand of A due to price change in B is  E A,B   = (% change in demand of A) / (% change in price of B) E A,B   < 0:  If  two goods A and B are complimentary goods then Coefficient of Cross Price- Elasticity of Demand will be negative. i.e. if price of one goods increases then demand of its  complimentary goods falls.  For example Cars and petrol are complimentary goods. If price of  petrol increases then demand of car falls.
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This note was uploaded on 05/10/2011 for the course ECO 212 taught by Professor Emil during the Spring '11 term at Aberystwyth University.

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ECO Supply and demand -...

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