monop.graphic

Monopoly

demand to the percentage change in income. If you knew that the income elasticity of demand was 2, then you would expect that as income expanded by 10 percent, demand would increase by 20 percent. You could also talk about the price elasticity of supply-the percentage change in supply divided by the percentage change in price.

Of all the elasticity concepts, there is however one that attention is usually focused on-the price elasticity of demand, or in its shortened version, the elasticity of demand. The price elasticity of demand would be calculated by dividing the percentage change in demand by the percentage change in price. As we will see later, the size of the resulting number will matter when we look at the relationship between revenue and price. If demand is unresponsive, we would talk about inelastic demand while a responsive demand would be referred to as elastic demand.

The formulas for demand elasticities are:

Income elasticity of demand
- definition: responsiveness of demand to income change
- formula: e_y = %鹽/%籮
Cross price elasticity of demand
- definition: responsiveness of demand (good A) to change in price of another good (price of B)
- formula: e_c = %鹽_A/%鹼_B
Price (own) elasticity of demand
- definition: responsiveness of demand to price change
- formula: e_p