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 xaxis)
1 < E
d
< 0
Inelastic
demand
E
d
< 1
Elastic demand
E
d
=  ∞
Perfectly elastic
demand (Demand curve is parallel to xaxis)
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 PriceElasticity 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.
 Spring '11
 acc101

Click to edit the document details