53 the elasticity of supply 253

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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 Ec = ∆ 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 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 >0 Infinite Substi...
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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.

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