Elasticity

					               Elasticity
            Claudia Garcia-Szekely




9/26/2011                            1
The Price Elasticity of
       Demand
• Measures the response of the
  quantity demanded to a change
  in price.
• Compare how responsive to price
  changes is the quantity
  demanded of prescription drugs
  and that of strawberries.
 9/26/2011                          2
                                       Consumers barely notice

      Consumers Overreact


110                              110

100                              100
              Big change in Q



          100              130         100 105




         9/26/2011                                               3
                                       Consumers barely notice

      Consumers Overreact


110                              110

100                              100
              Big change in Q



          100              130         100 105




         9/26/2011                                               4
     Calculating the Elasticity
Price   Quantity Demanded   Point
 0                  25       A         Midpoint Formula.
0.5                 22        B
                                       The elasticity is
 1                  19        C        measured between
 1.5                16       D         two points along a
 2                  13        E        given demand
2.36                11        F        curve.
2.5                 10       G
 3                  7        H
                                    The elasticity between B
3.5                 4         I
                                    and C measures the
                                    response to a $0.50
 4                  1        J
                                    change in the price.
4.5                 0         K



        9/26/2011                                       5
Midpoint Formula                    1.  Compute the
Price   Quantity Demanded   Point       difference
 0               25          A          between the two
0.5              22           B         quantities: 22-19 =
 1               19           C         3
                                    2. Compute the
 1.5             16          D         average of the two
 2               13           E        quantities: (22 +
2.36             11           F        19)/2 = 41/2 = 20.5
2.5              10          G
                                    3. Divide the answer
 3                   7       H         you got in (1) by the
3.5                  4        I        answer in (2). This is
 4                   1       J         the Percentage
4.5                  0        K        change in the
                                       quantity demanded:
                                       3/20.5 = 0.146
         9/26/2011                                         6
         The Midpoint Formula
Price   Quantity Demanded   Point
 0               25          A      4.   Compute the
0.5              22           B          difference between
 1               19           C          the two prices: (1-
 1.5             16          D
                                         0.5) = 0.5
 2               13           E     5. Compute the
2.36             11           F        average of the two
2.5              10          G         prices: (1+0.5)/2 =
 3                   7       H         0.75
3.5                  4        I     6. Divide the answer in
 4                   1       J
                                       (4) by the answer in
                                       (5). This is the
4.5                  0        K
                                       percentage change in
                                       the price: 0.5/0.75
                                       =0.667.
         9/26/2011                                         7
  The Midpoint Formula
8. Divide the percentage change in the
   quantity demanded: the answer you
   got in (3), by the percentage change
   in the price: the answer you got in
   (6).
The answer is the Price Elasticity of
   Demand between B and C.
          0.146 / 0.667 = 0.21

   9/26/2011                              8
        The Midpoint Formula

        Percentage Change Quantity Demanded
epd =
        Percentage Change in price


              Change in Quantity / Average Quantity
   epd =
              Change in Price / Average Price

        9/26/2011                                9
The Price Elasticity of
       Demand
• Measures the responsiveness of
  the quantity demanded to a
  change in price.
• There is a negative relationship
  between the price and the
  quantity demanded.
• The price elasticity of demand is
  ALWAYS NEGATIVE.
 9/26/2011                       10
      Price elasticity of
     demand is ALWAYS
         NEGATIVE

                    Always write a negative
                         sign in front!
               Change in Quantity   /   Average Quantity
epd =
               Change in Price / Average Price


   9/26/2011                                          11
         Three Types of
           Elasticities
Consider only the absolute value of the
  elasticity: |E|
The absolute value of the elasticity can
  be
• |e|>1                   Elastic

• |e|=1               Unitarily Elastic

• |e|<1                  Inelastic

   9/26/2011                               12
    Sensitive Demands are
    Elastic Demands (e > 1)
         Percentage Change in Quantity Demanded
epd =
         Percentage Change in price

If the numerator (DQ%) is larger than the
denominator (DP%) then epd is greater than
one.
A relatively small change in price causes a
relatively large change in quantity demanded.

        9/26/2011                               13
    Insensitive Demands are
    Inelastic Demands (e < 1)

        Percentage Change in Quantity Demanded
epd =
        Percentage Change in price
  If the numerator (DQ%) is smaller than the
  denominator (DP%), then epd is less than one.
  A relatively large change in price causes a
  relatively small change in quantity demanded.

         9/26/2011                                14
                Example
                             Elasticity
It has been observed that    20%
                           ahas no units!
  decrease in the price of good X,
  caused a 5% increase in the quantity
  demanded of X.

  epd      = 5% / -20% = - 0.25
Elasticity of Demand is less than one:
               Inelastic

    9/26/2011                               15
                Example
It has been observed that a 5%
 increase in the price, caused a 10%
 reduction in the quantity
 demanded.
    epd = -10% / 5% = - 2
 Elasticity of Demand is greater than
              one: Elastic


    9/26/2011                           16
1. Compute price elasticity
       PRICE              QUANTITY


             3               4


             1   e = -1      12




 9/26/2011                           17
1. Compute price elasticity
       PRICE                  QUANTITY


             5                   4


             1   e = - 0.75      12




 9/26/2011                               18
1. Compute price elasticity
       PRICE                QUANTITY


             3                 3


             1   e = -1.2      12




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            At Midpoint



                          Calculate the elasticity of
                              demand between A and E
             E




9/26/2011                                           20
            A is the Midpoint



                                Calculate the elasticity AT A

                E




9/26/2011                                                   21
The Elasticity Changes Along the
Demand Curve         As you move along a
                Quantity                                          demand curve -as price
 Price Demanded Point Elasticity                                  changes- the elasticity
                                                                  changes in absolute
                                                                  value.
   0                         25          A
                                  Elasticity Increases
  0.5                        22          B                -0.06
        As Price Increases




   1                         19          C                -0.22   For low prices (at the
  1.5                        16          D                -0.43     At of the
                                                                  bottomthe demand
   2                         13          E                -0.72   midpoint, is
                                                                  curve) demand
                                                                  relatively inelastic
  2.5                        10          G                -1.17
   3                          7          H                -1.94
                                                                           1
                                                                    |e| =prices (at the top
                                                                  For high
  3.5                         4          I                -3.55   of the demand curve)
   4                          1          J                -9.00   demand is relatively elastic
  4.5                         0          K               -17.00
The Elasticity Changes Along
     the Demand Curve
                |e| > 1
                             |e| = 1

                            |e| < 1

       0
       0                    100
                            1000
             100/2 == 500
             1000/2 50
               Midpoint
 9/26/2011                             23
                    Without calculating the
                       elasticity:
                    a. Is the elasticity at A
                       > B? A < B? A=B?
                    b. Is the elasticity at F
            F          > 1? F < 1? F=1?
                    c. Is the elasticity at E
                E      = 1?




9/26/2011                              24
  Perfectly Elastic Demand
• When the elasticity
  is a very large                    |e| =
  number (close to
  infinity)              0.61
• A perfectly elastic     0.6
  demand shows that at
  the slightest increase
  in the price, the
  quantity demanded
  would drop to zero.      0 Units           100 Units
Perfectly Inelastic Demand
• When the elasticity
  is a very small
  number (close to      1.20
  zero)
• A perfectly inelastic
  demand shows that            |e| = 0
  even after a large
  change in the price    0.6
  the quantity
  demanded would not
  change at all.                     100 Units
    The demand curve with the smallest elasticity is _______
    The demand curve with the largest elasticity is _______
    Demand curve _______ is perfectly elastic
     Demand curve _______ is perfectly inelastic
9/26/2011                                                      27
If the price elasticity of demand for
  good X is 0.5. In order to induce a
  10% reduction in consumption of this
  good, the government would need to
  tax this good until the price rises by
  how much?
           edp= % D Q / % D P
            0.5= 10%/ % D P
             10 /0.5 =% D P
                  20 =% D P                28
    What Determines the
        Elasticity?
• The number of substitutes available.
• The Definition of the market.
• The length of time consumers have to
  react to a price change.
• Necessities tend to have inelastic
  demands, whereas luxuries have elastic
  demands.
  – Example: Doctor visits, sailboats.
  9/26/2011                              29
The number of
Substitutes Available.
The more
substitutes       The more
exist for a       sensitive
given good, the   (elastic)
easier it would   demand would
be for            be to price
consumers to      changes
switch.

  9/26/2011                      30
Definition of              Common mistake: The more

the market.           +       +           =
                           specific the more inelastic
                          because only Ben and Jerry’s
                          chocolate ice cream “will do”
   Narrowly defined
    markets have
                              Ben and Jerry’s
     more elastic               Chocolate
      demands.                  Ice Cream



    |epd | > 1

    9/26/2011                                     31
                          Common mistake: The
 The Definition of the   larger the set the more

       market.         elastic because there are
                            lots of “choices”
                             HDz
   Broadly
                          Ice Cream
   defined
markets have                   B&J
 less elastic
  demands
                          Food
                                      Cookies
                       Beverages


         | epd | < 1
 9/26/2011                                      32
                       2. Which product will
                      be more elastic? Why?

2. Which product has
 more substitutes?
             a)   All frozen desserts
             b)   Ice cream
             c)   Chocolate ice cream
             d)   Ben and Jerry’s chocolate ice
                  cream


 9/26/2011                                        33
The Amount of Time to
       React
• The longer the time allowed, the
  easier it is for consumers to find
  an alternative or modify their
  behavior.
• Goods have more elastic demands
  over longer time horizons.
         Example: Gasoline.
   9/26/2011                           34
   Two ways to increase
        revenue
1. Increase price, in order to make
   more per unit
2. Decrease price, in order to sell more
   units.




   9/26/2011                               35
              Inelastic Demand
Increase Price              Decrease Price
• Quantity sold drops       • Quantity sold increase
• Decrease in Q is          • Increase in Q is
  SMALLER than increase       SMALLER than
  in price                    decrease in price
• Total Revenue increase.   • Total Revenue decrease



                                If demand is
                             Inelastic, increase
                            price to increase TR
      9/26/2011                                    36
                 Elastic Demand
Increase Price              Decrease Price
• Quantity sold drops       • Quantity sold increase
• Decrease in Q is          • Increase in Q is
  LARGER than increase in     LARGER than decrease
  price                       in price
• Total Revenue decrease.   • Total Revenue increase



                            If demand is Elastic,
                             decrease price to
                                increase TR
     9/26/2011                                      37
   The Price Elasticity of
   Demand and Revenues
• Total Revenues = Price x Quantity
• An increase in price will increase TR only if
  the quantity demanded does not fall “too
  much”.
• If the increase in price is larger than the
  drop in quantities, TR will increase.
• This is precisely what happens if demand is
  _____________
         Inelastic


     9/26/2011                                    38
When Demand is Inelastic
TR follow the change in P
If the drop in quantities is smaller than
the increase in price, total revenues will
increase.
 TR = P x Q              epd = D%Q / D%P
                         epd = small/ Large
                         |epd | < 1
       This is the case when |e| < 1.

     9/26/2011                                39
When Demand is Elastic TR
 follow the change in Q
If the drop in quantities sold is larger than
the increase in price, total revenues will fall
after a price increase.

  TR =        Px   Q      epd = D%Q / D%P
                           epd = Large/ small
                            |epd | > 1
      This is the case when |e| > 1
      9/26/2011                               40
Elasticity and Total Revenues
          TR = P x Q
This is the case when |e| > 1.


                TR = P x   Q
 This is the case when |e| < 1.

    9/26/2011                     41
Price   Quantity   Total Revenue         elasticity
  0      1,200               0
  2      1,100             2200              0.0
  4      1,000             4000
                    If total Revenues        -0.1
  6       900              5400
                     increase with a         -0.3
                                          Demand is
  8       800         price increase
                           6400            Inelastic
                                             -0.4
 10       700              7000              -0.6
 12       600              7200              -0.8
 14       500              7000              -1.2
 16       400              6400
                    If total Revenues        -1.7
 18       300              5400
                     decrease with a         -2.4
                                        Demand is elastic
 20       200              4000
                      price increase         -3.8
 22       100              2200              -7.0
 24        0                 0              -23.0
 If a company increases
 prices and as a result:
• Total Revenues       • Total Revenues
  Decrease.              Increase.
• Then the effect of   • Then the quantity
  higher prices, was     sold did not drop
  completely offset      enough to offset
  by the drop in         the increase in
     Demand is
  quantities sold.
      Elastic            price.
                             Demand is
                             Inelastic



   9/26/2011                                 43
3. Is this demand elastic
       or inelastic?
  PRICE         TOTAL      ELASTICITY
               REVENUE

      1        1,950,000
              Demand is
               Inelastic
   1.25        2,062,500




  9/26/2011                             44
The Elasticity Changes Along
     the Demand Curve
             Decrease Price to Increase TR
               |e| > 1
                         An increase/decrease in price
                                 |e| = 1
                          would leave TR unchanged

                           Increase Price to Increase TR
                               |e| < 1


              Midpoint

 9/26/2011                                           45
     When Demand is
       Inelastic
                                S1
                                     S0

            P1


        P0
                 Gain
                        L
                                 Gain     >   L
                                              o
                                              s
                        o                     s
                        s
                        s       D0   TR increase
                    Q1 Q
                            0

9/26/2011                                         46
     When Demand is
       Inelastic
                                  S0
                                       S1




                                            >
        P0
             Loss                 Loss




                                                Gain
        P1
                     Gain



                            D0

                    Q0 Q1

9/26/2011
                                 TR decrease           47
When Demand is Elastic

                                               >
                             S0




                                        Gain
                                  S1               Loss




 P0
 P1      Loss
                     Gain
                                        D0

                                       TR Increase
                Q0      Q1

  9/26/2011                                               48
When Demand is Elastic
                          S1

                               S0



                                            >


                                     Loss
                                                Gain

 P1
      Gain

P0
                  Loss


                                     D0

                                    TR Decrease
             Q1      Q0
  9/26/2011                                            49
     Elasticity and Price
           Controls
• When supply and demand are both elastic, a price
  floor will cause a larger surplus than when supply
  and demand are inelastic
• When supply and demand are both elastic, a price
  ceiling will cause a a larger shortage than when
  supply and demand are inelastic.




                                                       50
 Questions to prepare for the Quiz
1. Assume that currently, a book publisher charges one price
   for a novel by author B.
An economist determines that the price elasticity of demand
   for die hard fans of this author is – 0.4 and that the price
   elasticity of demand for regular buyers is –3.

The advertising department comes up with the idea of
  publishing the same book in a hard cover version to be
  published first, and a soft cover version to be released two
  months after the release of the hard cover version. This
  would allow the publisher to charge different prices to
  these two groups.

How would you advise them to set prices in order to increase
  total revenues?
2. Assume that currently, all customers pay the
   same price for a packet of cigarettes “Generic”
   brand D.
An economist determines that the price elasticity
   of demand by adults is –0.4 and that the price
   elasticity of demand by teenagers is –3.

The advertising department comes up with the idea
  of packaging cigarettes differently to target
  different groups: Target teenagers with “Cool”
  brand A and adults with “less tar” brand B.
How would you adjust prices in order to increase
  your total revenues?

You must provide a clear explanation for your
  answer.
       2.     Determine whether demand is elastic, inelastic,
              unit elastic or can’t tell:
             a. Chapped Hands Community College’s tuition
                 increased from $20 per unit to $25 per unit.
a.   Inelastic   Enrollment dropped from 8,000 to 7,200
     0.47
                 students.
b.   Unit
     elastic b. Washington apple growers sell a 10% larger crop
c.   Can’t tell  than last year’s , but the revenue they earned is
d.   Inelastic   unchanged.
e.   Elastic c. Honda offers a $100 rebate on its largest rider
     1.67        lawn mowers, and their sales rise 5%.
f.    Perfectly
             d. The price of doctor services falls and your
     Inelastic
     E=0         family’s total expenditures are less on doctor
                 services and more on other things.
             e. The price of carnations rises by 15%. Florists
                 substitute daisies and ferns ant the quantity
                 used of carnations drop by 25%.
             f. The price of coffee drops by 25 cents per
                 pound, but you continue to drink the same
                 amount as before.
      Tax Soda to Fight
          Obesity?
• Reducing soda intake by a 100
  calories a day results in a half a
  pound of weight loss after 18 months.
• A 10% tax on sodas, sport sodas and
  fruit juice cocktails would prompt
  consumers to reduce consumption by
  8%.

   9/26/2011                              54
                         Demand    Supply  Demand Demand
                Price of Quantity Quantity Demand    Demand
      Point        X        X
                          good X     X
                                   good X Complement Substitute
                                            good N    good R

        A          20          200           120         350          1050

        B          40          180           140         340          1065

        C          60          160           160         330          1080

        D          80          140           180         320          1095

        E         100          120           200         310          1110

        F         120          100           220         300          1125
3.   Use the table above to answer the following questions:
     a. Calculate the elasticity of demand and the elasticity of supply at point B
     b. Should this producer increase, decrease or leave the price the same? Why?
Use a supply and demand
diagram to explain why…
• Oil producing countries enjoy increases in their
  total revenues when they restrict supply.
• Farmers suffer declines in their total revenues
  when they become more productive as a group.
• Fresh tomato farmers enjoy increases in their
  total revenues when they become more productive
  as a group.
• Oil producing countries would see their total
  revenues decrease if they were to increase oil
  production.
• Restaurant owners see an increase in total
  revenues as competition from new restaurants
  increases.
    9/26/2011                                        56
Table 5. Estimated Price Elasticities of Demand for Various
Goods and Services
Goods                                Estimated Elasticity of Demand
Inelastic
Salt                                              0.1
Matches                                           0.1
Toothpicks                                        0.1
Airline travel, short-run                         0.1
Gasoline, short-run                               0.2
Gasoline, long-run                                0.7
Residential natural gas, short-run                0.1
Residential natural gas, long-run                 0.5
Coffee                                            0.25
Fish (cod) consumed at home                       0.5
Tobacco products, short-run                       0.45
Legal services, short-run                         0.4
Physician services                                0.6
Taxi, short-run                                   0.6
Automobiles, long-run                             0.2
Approximately Unitary
Elasticity
Movies                     0.9
Housing, owner occupied,
long-run                   1.2
Shellfish, consumed at
home                       0.9
Oysters, consumed at
home                       1.1
Private education          1.1
Tires, short-run           0.9
Tires, long-run            1.2
Radio and television
receivers                  1.2


     9/26/2011                   58
  Elastic
  Restaurant meals              2.3
  Foreign travel, long-run       4
  Airline travel, long-run      2.4
  Fresh green peas              2.8
  Automobiles, short-run     1.2 - 1.5
  Chevrolet automobiles          4
  Fresh tomatoes                4.6


9/26/2011                                59
    Types of Elasticity
• Price elasticity of demand.
• Price elasticity of supply.
• Income elasticity of
  demand.
• Cross Price elasticity of
  demand.
  9/26/2011                     60
  The Price Elasticity of
          Supply
• Measures the sensitivity of the
  quantity supplied to changes in the
  price.
• Since there is a direct relationship
  between the price and the quantity
  supplied
• The price elasticity of supply is
  always positive.

   9/26/2011                             61
    Price Elasticity of Supply:
                eps

           D in Quantity Supplied         /   Average Quantity
eps =
                    Change in Price   /   Average Price

        Percentage Change in Quantity Supplied
epd =
          Percentage Change in price

        9/26/2011                                         62
    Calculating the Price
    Elasticity of Supply
• To calculate the price    Price   Q Supplied Elasticity
  elasticity of supply,      40        140
  follow the same steps      50        160        0.60
                             60        180        0.65
  as for the price           70        200        0.68
  elasticity of demand.      80        220        0.71
• The only difference is     90        240        0.74
                            100        260        0.76
  that the price            110        280        0.78
  elasticity of supply is   120        300        0.79
  always POSITIVE.          130        320        0.81
                            140        340        0.82
                            150        360        0.83
                            160        380        0.84

    9/26/2011                                        63
Extreme Cases                 eps = infinity
                           P D0      D1
 Perfectly Elastic
 Supply
 suppliers can easily     Po                      Supply
 increase or decrease
 production
 to match demand,
                                 Q0     Q1            Qs
 Perfectly Inelastic Supply P
                                        Supply
 suppliers cannot
 increase production                   eps = 0
 to match demand.
 Supply is “fixed”.
                                                 D1
                                         D0
                                                      Qs
      9/26/2011                 Fixed Quantity         64
 Perfectly Inelastic Supply
   The quantity supplied of DaVinci
   paintings doesn't change
   regardless of what the price is.
   The number of seats in a
   stadium/theater does not change
   regardless of price


9/26/2011                             65
Elasticity changes along a
  P    Supply Curve
    eps = infinity   S   S


                         S




                         eps = 0
                                   Q

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            Calculate the Elasticity at point B.
9/26/2011                                          67
   Refer to the graph above. When price rises by 20%,
    Refer to the graph above. When price rises by 20%,
    quantity supplied remains the Which curve best
   quantity supplied rises by 20%.same. Which curve best
                               30%
   demonstrates the elasticity of supply in this example?
    demonstrates the elasticity of supply in this example?
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                    Without calculating
                       the elasticity:
                    a. Is the elasticity at
                       A > B? A < B? A=B?
                    b. Is the elasticity at
            E          F > 1? F < 1? F=1?
                F   c. Is the elasticity at
                       C > D? C < D? C =D?
                    d. Is the elasticity at
                       E > 1? E < 1? E=1?
                    e. Is the elasticity at
                       C > 1? C < 1? C =1?




9/26/2011                             69
   Refer to the graph above. When price rises by 20%,
   quantity supplied increases by 5%. Which curve best
   demonstrates the elasticity of supply in this example?
9/26/2011                                                   70
The Income Elasticity of
        Demand
• Measures the sensitivity of
  Demand to changes in INCOME.
• The relationship between Demand
  and INCOME depends on whether
  the good is normal or inferior.



  9/26/2011                         71
  The Income Elasticity
        Formula


         Change in Quantity     /   Average Quantity
epd =
         Change in Income   /   Average Income
         Percentage Change in Demand
 epd =
          Percentage Change in Income

   9/26/2011                                     72
           Normal Goods
• The Demand for normal goods
  INCREASES when income
  INCREASES.
• There is a positive relationship
  between income and demand for
  normal goods.
• The sign of the income elasticity for
  normal goods is positive.

   9/26/2011                              73
          Calculating Average Quantity
       Change in Quantity / the Income
ey =
 d

       Elasticity (Normal Goods)
       Change in Income / Average Income
1. Find the Percentage     Income DemandedEdy
                                Q.
     change in quantity
     demanded = 100 /       1000   300
     350 = 0.286            2000   400   0.43
2. Find the percentage
                            3000   500   0.56
   change in income =
   1000/1500 = 0.667        4000   600   0.64
3. The Income Elasticity =  5000   700   0.69
   0.286/0.667 = 0.429      6000   800   0.73
                            7000   900   0.76
   +                        8000   1000 0.79
        9/26/2011                               74
          Inferior Goods
• Demand for inferior goods
  DECREASES when income
  INCRESES.
• There is a negative relationship
  between income and demand for
  inferior goods.
• The sign of the income elasticity for
  inferior goods is negative.

   9/26/2011                              75
Inferior Good Income
      Elasticity
  Income Q. Demanded  Ed y
   1000      1000
   2000       900    -0.16
   3000       800    -0.29
   4000       700    -0.47
   5000       600    -0.69
   6000       500    -1.00
   7000       400    -1.44
   8000       300    -2.14


9/26/2011                    76
The Cross Price Elasticity
• Measures the sensitivity of the
  quantity demanded of one good to
  changes in the price of ANOTHER
  GOOD.
• Goods can be either Complements or
  Substitutes.




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        Cross Price Elasticity
              Formula


        % Change in Quantity demanded of Coke
                                         X
epd =
                 %Change in price of Pepsi
                                     Y.




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   Cross Price Elasticity for
         Complements
• The quantity demanded of a good
  decreases when the price of a complement
  increases,
  Example: When the price of PRINTERS increases,
    the quantity demanded of INK decreases.
• The price of one good and the Demand of
  the other good move in opposite directions.
• The cross price elasticity between
  complements is NEGATIVE.


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 Cross Price Elasticity
Complements ( Negative)
  Price X         Qua ntity Y   Cross Price
                                Elasticity x,y
  100.00            600.00
  130.00            580.00         -0.130
  160.00      All Negative!
                     560.00        -0.170
  190.00            540.00         -0.212
  220.00            520.00         -0.258
  250.00            500.00         -0.307
  280.00            480.00         -0.361
  310.00            460.00         -0.418
  340.00            440.00         -0.481
  370.00            420.00         -0.550

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   400.00           400.00         -0.626        80
Cross Price Elasticity for
      Substitutes
• When the price of a substitute INCREASES,
  the quantity demanded of the good
  INCREASES.
   Example: When the price of movie tickets increases,
     the quantity demanded of video tapes increases too.
• The price of one good and the Demand of the
  other move in the SAME direction.
• The cross price elasticity between
  substitutes is POSITIVE.



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 Cross Price Elasticity
 Substitutes (Positive)
  Price X         Qua ntity Y   Cross Price
                                Elasticity x,z
  100.00            600.00
  130.00            620.00          0.126
  160.00            640.00          0.153
  190.00    All Positive!
                      660.00        0.179
  220.00            680.00          0.204
  250.00            700.00          0.227
  280.00            720.00          0.249
  310.00            740.00          0.269
  340.00            760.00          0.289
  370.00            780.00          0.307
  400.00            800.00          0.325
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Use the information in table 1 above to calculate:
1. Price elasticity of demand for good X between points B and D.
2. Price elasticity of demand for good X at C.
3. Price elasticity of supply between A and B.
4. Cross Price elasticity between X and N between points E and F. Are X and N
    substitutes? Or complements?
5. Cross Price elasticity between X and R between points E and F. Are X and R
    substitutes? Or complements?
Your answer must have a value AND A SIGN!
            Solutions




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            Solutions




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            Solutions




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            Solutions




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