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Unformatted text preview: PGP I Term I G 2 G 1 Ordinal utility level IC 5 =U 5 IC 4 =U 4 IC 3 =U 3 IC 2 =U 2 IC 1 =U 1 Substitution effect A B C BL 1 BL 2 BL 3 Income effect G 1 G 2 Substitution effect A B C BL 1 BL 2 BL 3 Income effect G 1 G 2 Substitution effect A B C BL 1 BL 2 BL 3 Income effect G 1 G 2 Percentage change in quantity demanded of a good resulting from one percent change in its price Determinants: ◦ Market definition ◦ Close substitutes ◦ Necessities and luxuries ◦ Time horizon (Short run vs. long run) q p p q p p q q / / 1 ; 2 If , if ; , If b a p q p bp a bp q bp bp a q 2 4 4 8 q p ε =∞ ε =1 ε =0 q=82p ε >1 ε <1 q p q p p q q* p* Infinitely elastic demand Completely inelastic demand Percentage change in quantity demanded of one good resulting from one percent change the prices of the other s complement are goods the if substitute are goods the if / / cross cross 1 2 2 1 2 2 1 1 cross q p p q p p q q...
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This note was uploaded on 03/01/2012 for the course STRATEGY Om121 taught by Professor Abhinavdhar during the Spring '12 term at Harvard.
 Spring '12
 AbhinavDhar

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