Intermediate

Microeconomics
Vivekananda Mukherjee
Department of Economics, Jadavpur University
Lecture 5
Summary
• ‘Comparative Static’ exercise
• Exogenous parameters
• Existence and stability of market equilibrium
Summary (Contd.)
•  Elasticity calculated from ; can be endogenous/exogenous

If is differentiable,
.

Alternatively,
.
Price elasticity of demand
• Demand
  function:

• Own price elasticity of demand

) ) negative for normal goods
positive for Giffen goods
• Cross price elasticity of demand
) ) positive for gross substitutes
negative for gross complements
• Income elasticity of demand
) ) positive for normal goods
negative for inferior goods

for luxury commodities and for necessary commodities

Luxury vs. Necessary Commodities
•  Commodity is luxury if .
…………is necessary if .

Definition in terms of income elasticity

if and only if if and only if

 Own Price Elasticity of Demand
• 
) ) )

Example: Linear demand function

 𝐷 ( 𝑝 𝑖 , ∙ )=𝑠𝑚+ 𝑧 𝑝 𝑗 −𝑏 𝑝 𝑖 ; 𝑠 >0 , 𝑧 >0 , 𝑏>0.
𝑖  𝑝𝑖

.
if and only if . 𝑏 
if and only if

0 𝑄
  𝑖