Lecture6 - Cobb – Douglas ε =-1(Show Perfect Substitutes...

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Elasticity
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ELASTICITY General Case ( 29 Z W dW dZ W dW Z dZ W W Z Z W Z then W f Z zw = = = = = % % ,... ε Note: Unit Free (Unlike Slope = dZ/dW)
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ELASTICITY Examples: Own Price Elasticity of Demand Income Elasticity of Demand Cross Price Elasticity of Demand
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OWN PRICE ELASTICITY i i i i ii x p p x = ε where i i p x is the slope of the demand curve Demand of Elasticity Unit 1 Demand Inelastic 1 Demand Elastic 1 = < ii ii ii ε ε ε
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OWN PRICE ELASTICITY ε ii =f(substitutability, time, proportion on income spent on the good,…)
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Unformatted text preview: Cobb – Douglas ε = -1 (Show) Perfect Substitutes ε = ? Perfect Complements ε = ? INCOME ELASTICITY OF DEMAND Income Elasticity of demand i i i x M M x . ∂ ∂ = η η i > 0 Normal good η i < 0 Inferior good CROSS PRICE ELASTICITY OF DEMAND Cross Price Elasticity of demand i j i i ij x p p x . ∂ ∂ = ε ε ij > 0 Substitutes ε ij < 0 Complements...
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