Price Elasticity Flashcards
1
Q
What is the formula for cross price elasticity of demand?
A
(Change Q / Change P)*(P/Q)
2
Q
If a good is price inelastic, what happens to total expenditure as price decreases
A
Total expenditure decreases because there is a proportionately less increase in demand from the reduction in price.
3
Q
What sign is the cross price elasticity for complimentary and substitute goods?
A
Complimentary = negative, substitute = positive. As price of a good increases, its substitute demand will increase, while its complimentary demand will decrease.
4
Q
What is the income elasticity for a normal good and an inferior good?
A
Positive income elasticity = normal good, negative income elasticity = inferior good.
