Economics_terms_defn

# Economics_terms_defn - Elasticity of demand Elasticity of demand refers to Price elasticity of demand It responsiveness demand of a goods with the

This preview shows pages 1–2. Sign up to view the full content.

Elasticity of demand: Elasticity of demand refers to Price elasticity of demand. It responsiveness demand of a goods with the change in price. Coefficient of Price Elasticity of demand = (E d )= ( % change in demand) / (% change in price) Value of E d Interpretation E d = 0 Perfectly inelastic demand (Demand curve is perpendicular to x-axis) -1 < E d < 0 Inelastic demand E d < -1 Elastic demand E d = - ∞ Perfectly elastic demand (Demand curve is parallel to x-axis) Cross Price- Elasticity of Demand: This measures the responsiveness of the demand of a goods A to a price change of other goods B (even if price of A remains unchanged). Coefficient of Cross Price-Elasticity of Demand of A due to price change in B is E A,B = (% change in demand of A) / (% change in price of B) E A,B < 0: If two goods A and B are complimentary goods then Coefficient of Cross Price- Elasticity of Demand will be negative. i.e. if price of one goods increases then demand of its complimentary goods falls. For example Cars and petrol are complimentary goods. If price of

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
This is the end of the preview. Sign up to access the rest of the document.

## This note was uploaded on 01/05/2012 for the course 101 melissa jo taught by Professor Acc101 during the Spring '11 term at Aarhus Universitet.

### Page1 / 3

Economics_terms_defn - Elasticity of demand Elasticity of demand refers to Price elasticity of demand It responsiveness demand of a goods with the

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document
Ask a homework question - tutors are online