Econ 202 Chapter 6 Elasticity by Maryellen Ryan

Price Elasticity of demand

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Five Categories: listed below

3 Criteria

Cross Price elasticity of demand

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Income Elasticity of demand

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Price elasticity of supply

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Criteria of Relatively Price Inelastic Demand

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Criteria for Relatively Price Elastic Demand

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Criteria for Unit Price Elastic Demand

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Criteria for Perfectly Price Inelastic Demand

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Immediate short Run

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Short Run

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Long Run

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Price Elasticity of Demand coefficient:

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Price Effect/ Quantity Effect

Unit Price Elastic Demand

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Coefficient = 1

Graph offsets

Cannot vary price

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1. Price Elasticity Coefficient and Formula

2.Total Revenue Test

3.Graphing (Slope of Curve)

Criteria for Perfectly Priced Elastic Demand

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A product that has any number of substitutes, but has a cost that is invariable. An example is agriculture.

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Cross price measures how consumer purchases of one product are to change in the price of some other product.

Equation : Exy= change in quantity demand of product x/percent change in price of product y

3 Goods :

Substitute, Complementary, Independent

Value of Coefficient :

Cross elasticity :

Positive (Ewz>0)

Negative ( Exy<0)

Income elasticity

Positive (Ei>0)

Negative (Ei

Equations for Elasticity Demand

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Equation for Perfectly Priced Elastic Demand

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The elastic demand equals

Perfectly Price Inelastic Demand

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Very few substitutes

Quantity demanded by buyers doesn't change as much as price change

Coefficient between 0 and 1

The way to increase revenue is to increase price

Example: Only three drugs to treat an illness. There is some choice but it is limited.

Relatively Price Inelastic Demand Curve

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Perfectly Elastic Demand Graph

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Income Elasticity of Demand

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nk280 — 2014-11-10 07:56:32 UTC