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ABSTRACTION: Simplifying the complexities of the real world by ignoring (hopefully) unimportant details while doing economic analysis. Abstraction is often criticized because it's, well, it's JUST NOT REALISTIC. However, when done correctly (ignoring things that JUST DON'T MATTER), then the pursuit of knowledge is greatly enhanced by abstraction. For example, when travelling cross country along a high-speed interstate highway, a paper road map is a handy tool. It shows towns and cities along the way, the major intersections, rest stop locations, and other important points of interest. However, it ignores unimportant details. It doesn't realistically show the location of every tree, bush, or blade of grass. Why bother? This information won't enhance your road trip.
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Lesson 12: Elasticity and Demand | Unit 5: Other Measures
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Page: 24 of 25
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Topic:
Cross Elasticity Of Demand
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- How responsive is my demand to this change in my other prices? To answer these questions, we need the cross elasticity of demand.
- Cross elasticity of demand is the relative response of the demand for one good to changes in the price of another good.
- Or stated in percentage terms: the cross elasticity of demand is the percentage change in demand for one good resulting from a percentage change in the price of another good.
- The cross elasticity of demand is a handy numerical measure commonly used by economists to identify complement and substitute goods:
- For a substitute good, cross elasticity is positive, meaning that an increase in the price of one good leads to an increase in demand for the other good.
- For an complement good, cross elasticity is negative, meaning that an increase in the price of one good leads to a decrease in demand for the other good.
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MARGINAL REVENUE CURVE, PERFECT COMPETITION A curve that graphically represents the relation between the marginal revenue received by a perfectly competitive firm for selling its output and the quantity of output sold. Because a perfectly competitive firm is a price taker and faces a horizontal demand curve, its marginal revenue curve is also horizontal and coincides with its average revenue (and demand) curve. A perfectly competitive firm maximizes profit by producing the quantity of output found at the intersection of the marginal revenue curve and marginal cost curve.
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WHITE GULLIBON
[What's This?]
Today, you are likely to spend a great deal of time at an auction trying to buy either a small, foam rubber football or an instructional DVD on learning to the play the oboe. Be on the lookout for the last item on a shelf.
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This isn't me! What am I?
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Al Capone's business card said he was a used furniture dealer.
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"If anything terrifies me, I must try to conquer it. " -- Francis Charles Chichester, yachtsman, aviator
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AOM
Australian Options Market
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