Week 3_mastering demand

Week 3_mastering demand - Department of Food and Resource...

Info iconThis preview shows pages 1–7. Sign up to view the full content.

View Full Document Right Arrow Icon
LESE204 Department of Food and Resource Economics Mastering Demand
Background image of page 1

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

View Full DocumentRight Arrow Icon
LESE204 Department of Food and Resource Economics 1. Elasticity Definition %change in dependent variable with respect to % change in independent variable If E A,B > 0, then A and B are positively correlated. If E A,B < 0, then A and B are negatively correlated. B A E B A % % , If E A,B = 0, then A and B are unrelated. A B dB dA B dB A dA E B A / ,
Background image of page 2
LESE204 Department of Food and Resource Economics 1. Elasticity Some example Own price elasticity = Income elasticity = Q P dP dQ Cross price elasticity = , Q P dP dQ C C Demand function Q = Q(P; Pc, Ps, I) Q P dP dQ S S Q I dI dQ
Background image of page 3

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

View Full DocumentRight Arrow Icon
LESE204 Department of Food and Resource Economics 1. Elasticity Some example Own price elasticity Factors that affect own price elasticity i) number of substitutes: more substitute? more elastic ii) time: short run – inelastic , long run - elastic If consumers are allowed enough time, they can find other substitutes. iii) Expenditure share: If the share of a certain commodity is small within total expenditure, then consumers tend to respond slowly to the change in the price of that commodity Demand function Q = Q(P; Pc, Ps, I)
Background image of page 4
LESE204 Department of Food and Resource Economics 1. Elasticity Some example Own price elasticity = Income price elasticity = Q P b Cross price elasticity = , Q P c C Demand function linear demand Q = a + bP + cP C + eP S +gI Q P e S Q I g
Background image of page 5

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

View Full DocumentRight Arrow Icon
LESE204 Department of Food and Resource Economics 1. Elasticity Some example Own price elasticity = Income price elasticity = b Cross price elasticity = , c Demand function log-log demand : elasticities are constant lnQ = a + blnP + clnP C + elnP S +glnI e g Q P dP dQ P dP dQ Q P d dP dP dQ dQ Q d P d Q d 1 1 ln ln ln ln
Background image of page 6
Image of page 7
This is the end of the preview. Sign up to access the rest of the document.

Page1 / 29

Week 3_mastering demand - Department of Food and Resource...

This preview shows document pages 1 - 7. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online