ECO 2023 Lecture Notes - Lecture 4: Demand Curve
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Match the following terms with their proper definitions. |
Potential Matches: |
1 : measures the responsiveness of the quantity supplied of a good to changes in the price of that good |
2 : a formula that measures the responsiveness along a specific section (arc) of a supply or demand curve and measures the "average" price elasticity between two points on the curve. |
3 : measures the responsiveness of the quantity supplied of a good to changes in the price of the related good |
Answer |
: Own-Price Elasticity of Supply |
: Cross-Price Elasticity of Supply |
: Arc Elasticity |
(a) Explain why the cross elasticity of demand for substitute goods is positive and the cross elasticity of demand for complements is negative.
(b) Explain why the price elasticity of demand changes along a linear demand curve.
(c)
Income | Px | Py | Quantity of good x | Quantity of good y |
$30,000 | $6 | $3 | 2 | 20 |
$50,000 | $6 | $4 | 5 | 10 |
(i) Using the information in the table, calculate the income elasticity of demand for good X and characterize the good. Use the midpoint formula.
(ii) Can you calculate the income elasticity of demand for good Y? If you can, show your calculation and characterize the good. If you cannot, explain why.