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How can I calculate the respective own-price elasticities and the cross-price elasticizes? We assume that there are two goods that compete with each other, whose
How can I calculate the respective own-price elasticities and the cross-price elasticizes?
We assume that there are two goods that compete with each other, whose demand and 22 depend on their own price as well as on the price of the other good: x1 = x1(P1, P2) x2 = x2(P1, P2). For this situation, different price elasticities can be formulated, the so-called own-price elasticities of demand Ex,P (P1, P2) = 0x1(P, P2) P1 1 and T2,P2 (P1, P2) 0x2(P1, P2) P2 x2 x1 as well as the cross-price elasticities of demand dr(P1, P2) P1 Ex1,p2 (P1, P2) = x1(P1, P2) P2 and ET2,P1 (P1, P2) x1 Opi X2 = =
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aThe following two theorems are useful in the analysis of the effects of price changes Theorem 1 If the ownprice elasticity of demand for good 1 is gr...Get Instant Access to Expert-Tailored Solutions
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