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

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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
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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.

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

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