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Unformatted text preview: a measure of how much the quantity demanded of one good responds to a change in the price of another good. Crossprice elasticity of demand= Percentage change in quantity demanded of good 1 Substitute: positive
Complement: negative Percentage change in price of good 2 ∆ Qx / Qx
∆ Py / Py (a) Substitutes (b) Complements Price of oil Price of coal Quantity of oil Quantity of car Some Cross-Price Elasticity of Demand
PRODUCT SUBSTITUTE PRODUCT CROSSPRICE ELASTICITY BEEF Pork 0.28 BUTTER Margarine 0.67 ELECTRICITY Natural Gas 0.20 NATURAL GAS Fuel Oil 0.44 THEATER All other lively arts 0.12 SYMPHONY All other lively arts 0.53 Summary
Classification Elasticity Price elasticity (E)
Perfectly elastic Infinite Elastic ＞1 Unit elastic Inelastic 0 ＞E ＞1 Perfectly inelastic
Income elasticity (Ei) 0 Elastic (normal goods luxury) ＞1 Inelastic (normal goods – necessity)
Negatively elastic (inferior good)
Crossprice elasticity (Ec)
Perfectly substitutable 0 ＞ Ei ＞ 1
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This note was uploaded on 12/06/2011 for the course BUSINESS Finance taught by Professor Qiuxin during the Summer '11 term at Nanjing University.
- Summer '11