Exponential Demand Functions The following demand function is an exponential demand function:

Exponential Demand Functions This exponential demand function exhibits constant elasticities:

Problem 7.1, page 188 a. The market demand function for X is the sum of the demands of the four participants: For i = 1 (Pauper),2 (Broke),3 (Average), and 4 (Rich).

Price Elasticity of Demand

Cross Price Elasticity of Demand

Income Elasticity of Demand We can not compute the income elasticity of demand for good X without knowing whose income has changed.

If price of X doubles:

If Mr. Pauper loses his job and his income falls by 50%:

If Ms. Rich’s income drops by 50%:

If the government imposes a 100 percent tax on Y:

If I P =I B =I A =I R =25:

If I P =I B =I A =I R =25 and P X doubles:

If I P or I R drops by 50%:

If Ms. Rich finds Z a necessary complement to X:

Price Elasticity of Demand, e x, P x

Cross Price Elasticity of Demand