Managerial economics Business strategy Chapter 3 Quantitative Demand Analysis Michael R Baye, Managerial Economics and Business Strategy, 3e. CThe McGraw-Hill Companies, Inc, 1999
Michael R. Baye, Managerial Economics and Business Strategy, 3e. ©The McGraw-Hill Companies, Inc. , 1999 Managerial Economics & Business Strategy Chapter 3 Quantitative Demand Analysis
Oⅴ erven I Elasticities of demand Own Price Elasticity a Elasticity and Total revenue Cross-Price Elasticity Income elasticit IL Demand functions Linear Log-Linear III. Regression Analysis Michael R Baye, Managerial Economics and Business Strategy, 3e. CThe McGraw-Hill Companies, Inc, 1999
Michael R. Baye, Managerial Economics and Business Strategy, 3e. ©The McGraw-Hill Companies, Inc. , 1999 Overview I. Elasticities of Demand Own Price Elasticity Elasticity and Total Revenue Cross-Price Elasticity Income Elasticity II. Demand Functions Linear Log-Linear III. Regression Analysis
Elasticities of demand How responsive is variable"G to a change in variables 00△G GS 0O△S t s and g are directly related S and g are inversely related Michael R Baye, Managerial Economics and Business Strategy, 3e. CThe McGraw-Hill Companies, Inc, 1999
Michael R. Baye, Managerial Economics and Business Strategy, 3e. ©The McGraw-Hill Companies, Inc. , 1999 Elasticities of Demand • How responsive is variable “G” to a change in variable “S” + S and G are directly related - S and G are inversely related S G EG S = % %
Own Price Elasticity of Demand 0△Q Qx,Px%△Px Negative according to the law of demand ElastiC: E Inelastic:Egx, P <1 Unitary: EOP, =1 Michael R Baye, Managerial Economics and Business Strategy, 3e. CThe McGraw-Hill Companies, Inc, 1999
Michael R. Baye, Managerial Economics and Business Strategy, 3e. ©The McGraw-Hill Companies, Inc. , 1999 Own Price Elasticity of Demand • Negative according to the “law of demand” Elastic: Inelastic: Unitary: X d X Q P P Q E X X = % % , , 1 QX PX E , 1 QX PX E , =1 QX PX E
Perfectly elastic Inelastic demand Price Price D uantity Quantity Perfectly elastic Perfectly Inelastic Michael R Baye, Managerial Economics and Business Strategy, 3e. CThe McGraw-Hill Companies, Inc, 1999
Michael R. Baye, Managerial Economics and Business Strategy, 3e. ©The McGraw-Hill Companies, Inc. , 1999 Perfectly Elastic & Inelastic Demand Perfectly Elastic D Price Quantity Perfectly Inelastic D Price Quantity