Price elasticity of demand: is the percentage change in the quantity demanded divided by the corresponding percentage change in the price
- elasticities observe how the quantity demanded changes to a change in price
- arc elasticity of demand: % change in Q / % change in price
- point elasticity of demand: derivative of the demand function * P/Q
- percentage change: ( new P - Old P / average of P ) * 100
Cross price elasticity: the effect on the quantity demanded of good A when the price of good B is changed
- Arc Elasticity: % change in Q A/ % change in price B
- Point elasticity: (derivative of the demand function A / derivative of the price B)* PB/QA
- positive = substitutes
- negative = complements
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