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## Lecture 6 Week 4 Chapter 5

by: Danielle Linska

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0

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# Lecture 6 Week 4 Chapter 5 EC 201

Marketplace > Michigan State University > EC 201 > Lecture 6 Week 4 Chapter 5
Danielle Linska
MSU

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These notes cover Other Elasticity Measures Relating to Demand, Income Elasticity of Demand and Cross-Price Elasticity of demand.
COURSE
Intro to Microeconomics
PROF.
C. Liedholm
TYPE
Class Notes
PAGES
4
WORDS
CONCEPTS
Econ, Econometrics, Microeconomic, elasticity
KARMA
25 ?

## Popular in Department

This 4 page Class Notes was uploaded by Danielle Linska on Thursday September 22, 2016. The Class Notes belongs to EC 201 at Michigan State University taught by C. Liedholm in Fall 2016. Since its upload, it has received 7 views.

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Date Created: 09/22/16
Lecture  6  Week  4  Chapter  5 Monday,  September   19,  2016 1:37  PM Next  time:   Government  (Chapter  6)   First  Midterm  is  October  5th Today:   • Other  elasticity  measures • Uses  of  elasticity   Other  Elasticity  Measures  Relating  to  Demand   Income  Elasticity  of  Demand Cross-­‐Price  Elasticity  of  demand.   • Two  products  crossing   ○ Example:  coke  and  pepsi Income  Elasticity  of  Demand:   • Percent  change  in  quantity  demanded  divided  by  a  percent  change  income: % ▯▯▯▯▯▯ ▯▯▯ ○ E(income)  =% ▯▯▯▯▯▯ ▯▯▯⎯⎯⎯ ○ Inferior  good  will  have  a  ( -­‐)   ○ Normal  good  will  have  a  (+)   • Income  elasticity  of  demand  will  be  positive  for  normal  goods  (+) • Negative  for  inferior  ones  ( -­‐) Cross-­‐Price  Elasticity  of ( )mand   • Ec  =  ⎯⎯⎯⎯⎯⎯⎯⎯⎯⎯⎯⎯⎯⎯⎯⎯⎯⎯⎯⎯⎯ ▯▯▯▯▯▯▯▯▯▯ ▯▯▯▯▯▯ ▯▯▯ ▯ ( ) • Price  of  coke  goes  up,    demand  for  Spartan  lemon -­‐lime  goes  up   • (+),(+) • Substitutes  (+)   • Complements  (-­‐)   • Cross  price  tells  you  if  the  two  products  are  substitutes  or  complements If  cross  price  elasticity  of  demand  between  CC  and  unknown  product  X  is  +.80,  then  "x"  would   most  likely  be:   E. A  pepsi  cola,  a  substitute Lecture  6  Week  4  Chapter  5 Monday,  September   19,  2016 1:37  PM Next  time:   Government  (Chapter  6)   First  Midterm  is  October  5th Today:   • Other  elasticity  measures • Uses  of  elasticity   Other  Elasticity  Measures  Relating  to  Demand   Income  Elasticity  of  Demand Cross-­‐Price  Elasticity  of  demand.   • Two  products  crossing   ○ Example:  coke  and  pepsi Income  Elasticity  of  Demand:   • Percent  change  in  quantity  demanded  divided  by  a  percent  change  income: % ▯▯▯▯▯▯ ▯▯▯ ○ E(income)  =% ▯▯▯▯▯▯ ▯▯▯⎯⎯⎯ ○ Inferior  good  will  have  a  ( -­‐)   ○ Normal  good  will  have  a  (+)   • Income  elasticity  of  demand  will  be  positive  for  normal  goods  (+) • Negative  for  inferior  ones  ( -­‐) Cross-­‐Price  Elasticity  of ( )mand   • Ec  =  ⎯⎯⎯⎯⎯⎯⎯⎯⎯⎯⎯⎯⎯⎯⎯⎯⎯⎯⎯⎯⎯ ▯▯▯▯▯▯▯▯▯▯ ▯▯▯▯▯▯ ▯▯▯ ▯ ( ) • Price  of  coke  goes  up,    demand  for  Spartan  lemon -­‐lime  goes  up   • (+),(+) • Substitutes  (+)   • Complements  (-­‐)   • Cross  price  tells  you  if  the  two  products  are  substitutes  or  complements If  cross  price  elasticity  of  demand  between  CC  and  unknown  product  X  is  +.80,  then  "x"  would   most  likely  be:   E. A  pepsi  cola,  a  substitute • Cross  price  tells  you  if  the  two  products  are  substitutes  or  complements If  cross  price  elasticity  of  demand  between  CC  and  unknown  product  X  is  +.80,  then  "x"  would   most  likely  be:   E. A  pepsi  cola,  a  substitute Importance/Uses  of  Elasticity   1. Estimating  (predicting)  changes  in  demadu   antities • Predicting  Quantity  Changes  from   Price  Change   ????????????????????  ???? ▯⎯⎯⎯⎯????⎯⎯⎯ ▯ ○ ▯ ⎯????????????????????  ???? ▯ ⎯⎯⎯⎯⎯⎯⎯ %  change  in  Q(d)  =   -­‐E(d)  (%change  in  price) ○ 2. Estimating  (predicting)r  evenue changes   Predicting  Quantity  changes  fr  ncome  changes   Total  Sales  Revenue   • (Price)(Quantity)  =   Total  Sales  Revenue   Elasticity,  price  and  Total  Revenue   Elasticity Percent  Change  Price   Percent  Change  Quantity   Percent  Change  Revenue   Elastic  >1   Unitary  =1 0 Inelastic  <1 • Elastic  -­‐ lower  price,  more  revenue  (indirect) • Inelastic  -­‐ direct,  price  up,  revenue  up Elasticity  and  Revenue   • If  elastic  demand,  price  and  total  revenue   inversely  related   • If  inelastic  demand,  price  and  total  revenue   directly  related • If  unit  elastic  demand,  price  and  total  revenue  effect  is   zero. • Cross  price  tells  you  if  the  two  products  are  substitutes  or  complements If  cross  price  elasticity  of  demand  between  CC  and  unknown  product  X  is  +.80,  then  "x"  would   most  likely  be:   E. A  pepsi  cola,  a  substitute Importance/Uses  of  Elasticity   1. Estimating  (predicting)  changes  in  demadu   antities • Predicting  Quantity  Changes  from   Price  Change   ????????????????????  ???? ▯⎯⎯⎯⎯????⎯⎯⎯ ▯ ○ ▯ ⎯????????????????????  ???? ▯ ⎯⎯⎯⎯⎯⎯⎯ %  change  in  Q(d)  =   -­‐E(d)  (%change  in  price) ○ 2. Estimating  (predicting)r  evenue changes   Predicting  Quantity  changes  fr  ncome  changes   Total  Sales  Revenue   • (Price)(Quantity)  =   Total  Sales  Revenue   Elasticity,  price  and  Total  Revenue   Elasticity Percent  Change  Price   Percent  Change  Quantity   Percent  Change  Revenue   Elastic  >1   Unitary  =1 0 Inelastic  <1 • Elastic  -­‐ lower  price,  more  revenue  (indirect) • Inelastic  -­‐ direct,  price  up,  revenue  up Elasticity  and  Revenue   • If  elastic  demand,  price  and  total  revenue   inversely  related   • If  inelastic  demand,  price  and  total  revenue   directly  related • If  unit  elastic  demand,  price  and  total  revenue  effect  is   zero.

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