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Unformatted text preview: - Cross elasticity: Compliments _____ = E C ∆P B ∆ P B Tea/Coffee 0.14 Substitutes IMPORTANCE/USES OF ELASTICITY 1. Estimating (predicting) changes in demand quantities a. Predicting Quantity changes from Price Change a.i. Percentage Change in Quantity Demanded = (-E D ) (Percentage change in price) a.ii. Price goes up quantity goes down a.iii. MSU Parking: (-0.5 x 100%) = -50% b. Predicting Quantity changes from Income changes c. (E INCOME ) x (∆ Income ) (Income) 2. Estimating (Predicting) revenue changes a. Price ^ Revenue ^ a.i.1. (Price[up])(Quantity[down]) ELASTICITY, PRICE, AND TOTAL REVENUE ELASTICITY PERCENT CHANGE PRICE PERCENT CHANGE QUANTITY PERCET CHANGE REVENUE ELASTIC Down/Up UP/DOWN Up/Down INVERSE UNITARY Down/Up Up/Down None/None INELASTIC DOWN/UP Up/Down DOWN/UP DIRECT...
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This note was uploaded on 10/13/2011 for the course EC 201 taught by Professor Haider during the Spring '10 term at Michigan State University.
- Spring '10