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2.3.10, Lecture Notes, EC 201

2.3.10, Lecture Notes, EC 201 - Cross elasticity...

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2.3.10, Lecture Notes, EC 201 - Week of Feb. 8 o Chapter 6 o Lectures: Professor Fisher o PS #1 Due: Feb 10  - Week of Feb 15 o Review Session Feb 15 o Midterm Exam Feb 17 C 102 Wilson  - Week of Feb 22 o Virtual Classes  OTHER ELASTICITY MEASURES RELATING TO DEMAND - Income elasticity of demand - Cross price elasticity of demand Income elasticity of demand is the percent change in quantity demand divided by the percent change in income.  E INCOME  = % Change in Q      % Change in I Q D Q ____        =      E I  Income Income  Normal Good (Positive Income Elasticity of Demand)  Inferior Good (Negative Income Elasticity of Demand)  Income elasticity of demand will be positive for normal goods and negative for inferior ones.  CROSS ELASTICITY OF DEMAND E C  = Percentage change in Q A          Percentage change in P B
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Q DA + Cross elasticity: Substitutes Q DA - Cross elasticity: Compliments
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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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2.3.10, Lecture Notes, EC 201 - Cross elasticity...

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