microbook_3e-page49

Microbook_3e-page49 - will increase the demand for cream cheese x The cross-price elasticity of demand for cream cheese with respect to a change in

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Own-Price Elasticity of Linear Demand ¡ < İ < –1 Elastic Demand : 1% price increase reduces quantity demanded by more than 1% İ = –1 Unit Elastic Demand : 1% price increase reduces quantity demanded by 1% – 1 < İ < 0 Inelastic Demand : 1% price increase reduces quantity demanded by less than 1% … but what about butter? x So you’re still selling cream cheese, but now the price of butter (a substitute for cream cheese) goes up x What’s going to happen to demand for your cream cheese? x Since the goods are substitutes, an increase in the price of butter
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Unformatted text preview: will increase the demand for cream cheese. x The cross-price elasticity of demand for cream cheese with respect to a change in the price of butter is: cheese c. butter butter cheese c. butter cheese, c. Q P ǻ P ǻ Q e ¡ x this elasticity will be positive since ǻ Q ǻ P cheese c. butter ! ¢ ! x so let’s say: 0.5 e butter cheese, c. , then a one percent increase in the price of butter causes a 0.5 percent increase in the demand for cream cheese Page 49...
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This note was uploaded on 12/29/2011 for the course ECO 311 taught by Professor Willis during the Fall '10 term at SUNY Stony Brook.

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