Econ 201 Chapter 5 Part 2 Notes
Econ 201 Chapter 5 Part 2 Notes ECON 2010
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This 2 page Class Notes was uploaded by Kathryn Catton on Wednesday March 2, 2016. The Class Notes belongs to ECON 2010 at a university taught by Dr. Zegeye in Winter 2016. Since its upload, it has received 28 views.
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Date Created: 03/02/16
ECON 201 Chapter 5 Part 2 Notes The Cross-Price Elasticity of Demand: measure of how much the quantity demanded of one good responds to a change in the price of another good, computed as the percentage change in quantity demanded of the first good divided by the percentage change in the price of the second good. Whether the cross-price elasticity is a positive or negative number depends on whether the two goods are substitutes or complements. The schedule can include either complements or substitutes. E of A/B represents the equation in comparison of schedule/good A or B. An example would be coffee (A) and tea (B). They are substitutes. The equation would look like this: (Q2 –Q1/Q2+Q1) of A * (P2+P1/P2-P1) of B Price Elasticity of Supply: a measure of how much the quantity supplied of a good responds to a change in the price of that good, computed as the percentage change in quantity supplied divided by the percentage change in price. The price of elasticity of supply depends on the flexibility of sellers to change the amount of the good they produce. Examples of elastic: manufactured goods, cars, books, and TV’s. Inelastic: beachfront land. The equation is the exact same as for demand but you include supply and base it off of the supply schedule. Absolute value of E > 1, supply is price elastic= %Change of Q > % Change of P. Excess capacity- too many buildings or machines not being used. Absolute value of E < 1, supply is price inelastic= %Change of Q < %Change of P. Absolute value of E = 1, supply is of unit elasticity= %Change of Q = %Change of P. Absolute value of E = 0, supply is perfectly inelastic= %Change of Q = 0, %Change of P= (+/-). Parking spaces and seats in the classroom. Absolute value of E = infinity, supply is perfectly inelastic= %Change of Q (+/-), %Change of P= 0
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