ECON 201 Chapter Notes - Chapter 13: Tax Incidence, Luxury Goods
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ECON 201 Full Course Notes
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A key component of the pricing decision is to know how responsive your market is to variations in your pricing. We begin by analyzing the responsiveness of consumers to price changes. Price elasticity of demand: is measured as the percentage change in quantity demanded, divided by the percentage change in price. Price elasticity of demand = d = (percentage change in quantity demanded) / (percentage change in price) = (% q) / (% p) % pd = (change in price) / (average price) 100. Cross-price elasticity of demand: is the percentage change in the quantity demanded of a product divided by the percentage change in the price of another. Income elasticity of demand: is the percentage change in quantity demanded divided by a percentage change in income. D = (percentage change in quantity demanded) / (% percentage change in income) = (% q) / (% i) Luxury good or service: income elasticity >= 1.