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ECON 20033 MICROECONOMICS

 This course introduces to the pillars of economic


analysis (choice, scarcity and coordination) and the
mathematical techniques that economist use to
represent these ideas. Most of the course devoted to
price theory, elasticity, price regulation and consumer
choice. Market structures such as perfect
competition, monopoly, monopolistic competition
and oligopoly will also be discussed.

1
Module on Microeconomics/Assoc. Prof. Norie L. Maniego
Definition of Economics

 A science or a social science that deals with the


efficient allocation of scarce resources in order to
satisfy the unlimited wants/needs.
 Science because it deals with a systematize body of
knowledge
 Social science because it is concerned with the society
 Efficient allocation
 Scarce resources include inputs such as labor, capital,
land and entrepreneur.
 Unlimited wants and needs
2
SCARCITY

CHOICE

OPPORTUNITY
COST

3
Examples of Economic Agents and the Choices
That They Face
Economic Agent or Unit Examples of economic decisions or choices
Household How to satisfy the needs of the households; how to plan future
of family members?
Laborer How to find productive employment; how to improve welfare;
how to provide for old age?
Firm What goods to produce at the cheapest possible cost; how to
keep market position?
Entrepreneur How to combine labor, capital and land to produce goods at
cheapest possible costs; how to deal with uncertainty in
economic conditions and to take risk to advance business
plans?
Owners of capital How to achieve the best return from among the alternative
investment projects?
Government How to raise revenues to finance operations to maintain
activities of the government?
4
 One means by which society allocate scarce resources
and goods is the market system.

 The study of the market system, which is the subject of


economics, is divided into two main braches;
macroeconomics and microeconomics.

5
Macroeconomics
 The prefix macro means large, indicating that
macroeconomics is concerned with the study of the
market system on a large scale.
 Macroeconomics considers the aggregate performance of
all markets in the market system and is concerned with the
choices made by the large subsectors of the economy—the
household sector, which includes all consumers; the
business sector, which includes all firms; and the
government sector, which includes all government
agencies.

6
Microeconomics
 The prefix micro means small, indicating that
microeconomics is concerned with the study of the
market system on a small scale.
 Microeconomics looks at the individual markets that
make up the market system and is concerned with the
choices made by small economic units such as individual
consumers, individual firms, or individual government
agencies.

7
Macroeconomics vs. Microeconomics
 GDP grew by 4.6% in the Philippines in 2008.

 Headline inflation rate was 4.8 % in 2008.

 An unexpected heat in the Philippines reduced the rice


production and caused the price of rice to increase.

8
Relationships between facts, theories and
policies in economics
GOOD ECONOMIC
THEORIES-LAWS & COURSE OF
FACTS PRINCIPLES ACTION/SOLUTIONS

POSITIVE NORMATIVE

9
Normative versus Positive
Economics
 Normative—incorporates value judgments about what the
economy should be like or what particular policy or actions
should be recommended to achieve a desirable goal.
 Positive—focuses on facts and cause and effect
relationships. It tries to establish scientific statements
about economic behavior, and deals with what the
economy is actually like.

10
Normative versus Positive Statements
 The price of rice should be increased to improve the
well being of farmers (normative)

 After a good harvest, the price of rice will fall. But after
a bad harvest, the price of rice will increase(positive)

11
ECONOMIC SYSTEM
 Set of institutional arrangements and coordination
mechanism to respond to the economizing economic
problems.
1. Traditional economic system
2. Command economic system/socialism or
communism
3. Market system or capitalism
4. Mixed system

12
Five Fundamental Questions
 What goods and services will be produced?
 How will the goods and services be produced?
 Who will get the goods and services?
 How will the system accommodate change?
 How will the system promote progress?

13
The Circular Flow Model

14
Exercise 1:
I. Indicate whether each of the following statements
applies to microeconomics or macroeconomics
1. The unemployment rate in the United States was 5.8% in
March 2003.
2. XYZ company laid off 15 workers last month.
3. US output adjusted for inflation, grew by 2.4% in 2002.
4. The consumer price index rose by 1.6% in 2002.
5. The price of sugar decreased by P10 last month.

15
Module on Microeconomics/PUP Open University-Asst. Prof. Norie L. Maniego
Exercise 2
II. Identify each of the following as either a positive or a normative
statement
1. It was too hot today.
2. Other things equal, higher interest rates reduce the total amount of
borrowings.
3. Interest rates are too high.
4. The government should increase the minimum wage in order for the
workers to cope up with the rising prices of goods.
5. An increase in the price of rice will lead to a reduction in the quantity
demanded for rice.

16
Demand and Supply
Analysis

17
Circular Flow of Economic Activity

18
Demand

Demand indicates how much of a good consumers


are willing and able to buy at each possible price
during a given time period, other things constant
Planned rate of purchase per period at each possible
price
Willing and able to buy is critical to demand
Different than wants and needs

19
Law of Demand

Says that quantity demanded varies inversely


with price, other things constant

The higher the price, the smaller the quantity


demanded

The lower the price, the larger the quantity


demanded

20
Explanations for Law of Demand

Degree of scarcity of one good relative to


another helps determine each good’s relative
price
Definition of demand includes the “other
things constant” assumption
Among the “other things” are the prices of other
goods

21
Substitution Effect

When the price of a good falls, its relative price


makes consumers more willing to purchase this
good
When the price of a good increases, its relative
price makes consumers less willing to purchase
this good

Changes in the relative prices – the price of one


good compared to the prices of other goods –
causes the substitution effect
22
Income Effect
Money income
Number of peso received per period of time
Real income
Income measured in terms of the goods and services
it can buy
When the price of a good decreases, real income
increases
When the price of a good increases, real income
declines

23
Exhibit 1: Demand Schedule
& Demand Curve for Pizza
(a) Demand Schedule
(b) Demand Curve
Price per Quantity Demanded
Pizza per Week (millions)
P18
a) P15 8
a
b) 12 14 P15
c) 9 20
d) 6 26

Price per Pizza


P12 b
e) 3 32

P9 c
The demand schedule lists possible
prices, along with quantity
demanded at each price. The P6 d
demand curve at the right shows
each price / quantity combination P3 e
listed in the demand schedule as a
point on the demand curve. P0
8 14 20 26 32
Millions of Pizzas per week
24
Demand and Quantity Demanded

P15.00 a
Demand for pizza is not a

Price per quart


specific quantity, but rather the
12.00 b
entire relation between price and
quantity demanded, and is
represented by the entire demand 9.00 c
curve
An individual point on the 6.00 d
demand curve shows the quantity
demanded at a particular price.
3.00 e
The movement from say, b to c,
is a change in quantity demanded D
and is represented by a movement 0
along the demand curve and can 8 14 20 26 32
only be caused by a change in Millions of pizzas per week
price

25
Individual Demand Market
Demand

Individual demand refers to the demand of an


individual consumer

Market demand is the sum of the individual


demands of all consumers in the market

Important: Unless otherwise noted, we will be


referring to market demand

26
Shifts of the Demand Curve

Demand curve focuses on the relationship


between the price of a good and the quantity
demanded when other factors that could affect
demand remain unchanged
Money income of consumers
Prices of related goods
Consumer expectations
Number and composition of consumers in the
market
Consumer tastes
27
Exhibit 2: Increase in the Market Demand

Suppose income
increases: some P15
consumers will now be
b f
able to buy more pizza Price 12
at each price 
market demand
9
increases  demand
shifts to the right from
D to D' 6
A decrease in
D'
demand will mean 3
demand shifts to the D
left from D' to D.
0
8 14 20 26 32
Millions of pizzas per week
28
Changes in Consumer Income
Goods can be classified into two broad categories:
Normal goods: the demand increases when income
increases and decreases when income decreases
Inferior goods: the demand decreases when income
increases and increases when income decreases

29
Changes in the Prices of Related Goods

Prices of other goods are another factor that


assumed constant along a given demand curve
Two general relationships
Two goods are substitutes if an increase in the price of
one shifts the demand for the other rightward and,
conversely, if a decrease in the price of one shifts the
demand for the other good leftward
Two goods are complements if an increase in the price
of one shifts the demand for the other leftward and a
decrease in the price of one shifts the demand for the
other rightward

30
Changes in Consumer Expectations

If individuals expect income to increase in the


future, current demand increases and vice versa

If individuals expect prices to increase in the


future, current demand increases and decreases
if future prices are expected to decrease

31
Module on Microeconomics/PUP Open University-Asst. Prof. Norie L. Maniego
Supply

Supply indicates how much of a good producers


are willing and able to offer for sale per period
at each possible price, other things constant
Law of supply states that the quantity supplied
is usually directly related to its price, other
things constant
The lower the price, the smaller the quantity
supplied
The higher the price, the greater the quantity
supplied
32
Law of Supply

As price increases, other things constant, a


producer becomes more willing to supply the
good
higher prices attract resources from lower-valued
uses
Higher prices also increase producer’s ability to
supply the good
Since the marginal cost of production increases as
output increases, producers must receive a higher
price for the output in order to be able to increase the
quantity supplied
33
Exhibit 3: Supply Schedule and Curve for Pizzas
Supply Schedule

Price per Quantity Supplied


Price S
Pizza per Week (millions)
P15
P15 28
12 24 12
9 20
6 16 9
3 12
The supply curve and the supply 6
schedule both show quantities of
pizza supplied per week at various
3
prices by all the pizza makers in
the market
0
Price and quantity supplied are
directly, or positively, related: 12 16 20 24 28
producers offer more for sale at
Millions of pizzas per week
higher prices than at lower ones:
Supply curve slopes upward
34
Supply and Quantity Supplied

Supply refers to the relation between the price


and quantity supplied as reflected by the supply
schedule or the supply curve

Quantity supplied refers to a particular amount


offered for sale at a particular price, a
particular point on a given supply curve

35
Individual Supply and Market Supply

Individual supply refers to the supply of an


individual producer

Market supply is the sum of individual supplies


of all producers in the market

Unless otherwise noted, we will be referring to


market supply

36
Shifts of the Supply Curve
Determinants of supply other than the price of the
good
State of technology
Prices of relevant resources
Prices of alternative goods
Producer expectations
Number of producers in the market

37
Exhibit 4:Change in Technology Can Mean an Increase in Supply

S
S'
A more efficient P15.00
technology, a high-
g
tech oven, is invented 12.00 h

Price per quart


Production costs fall
 suppliers will be 9.00
more willing and more
able to supply the
good  rightward 6.00
shift of the supply
curve from S to S'. 3.00
Result: more is
supplied at each 0
possible price 12 16 20 24 28
Millions of pizzas per week

38
Changes in the Prices of Relevant Resources

Resources that are employed in the production of the


good in question
For example, if the price of mozzarella cheese
falls, the cost of pizza production declines
Conversely, if the price of some relevant
resource increases, supply decreases

39
Prices of Alternative Goods

Alternative goods are those that use some of the


same resources employed to produce the good
under consideration
For example, as the price of bread increases, so does
the opportunity cost of producing pizza and the
supply of pizza declines

Conversely, a fall in the price of an alternative good


makes pizza production more profitable and supply
increases

40
Changes in Producer
Expectations
When a good can be easily stored, expecting future
prices to be higher may reduce current supply
More generally, any change expected to affect
future profitability could shift the supply curve

41
Number of Producers

Since market supply sums the amounts supplied at


each price by all producers, the market supply
depends on the number of producers in the market
 If that number increases, supply increases
 If the number of producers decreases, supply
decreases

42
Module on Microeconomics/PUP Open University-Asst. Prof. Norie L. Maniego
Demand and Supply Create a
Market
Demanders and suppliers have different views of
price
Demanders, consumers, pay the price
Suppliers, sellers, receive the price
As price rises, consumers reduce their quantity
demanded along the demand curve, and producers
increase their quantity supplied along the supply
curve

43
Markets

Sort out the conflicting price perspectives


of individual participants – buyers and
sellers
Represent all arrangements used to buy
and sell a particular good or service
Reduce transaction costs of exchange –
costs of time and information required for
exchange

44
Exhibit 5: The Market for Pizzas

45
Exhibit 5: The Market for Pizzas
At initial price P12, Price S
producers supply 24
P15.00
million pizzas per week Surplus
(supply curve) while
12.00
consumers demand only 14
million: excess quantity c
9.00
supplied (or surplus) of 10
million pizzas per week
6.00
To eliminate this surplus,
suppliers put downward
3.00
pressure on prices
As prices fall, quantity D
0
supplied declines and 14 20 24
quantity demanded Millions of pizzas per week
increases: market moves
towards equilibrium at
point c

46
Exhibit 5: The Market for Pizzas
S
Initial price is P6 per
pizza, 26 million are P15.00
demanded, but
producers supply only Price 12.00
16 million: an excess c
quantity demanded (or 9.00
shortage) of 10 million
pizzas per week 6.00
Shortage
As prices increase,
producers increase 3.00
quantity supplied and D
consumers reduce their 0
16 20 26
quantity demanded, Millions of pizzas per week
moving towards
equilibrium at point c

47
Module on Microeconomics/PUP Open University-Asst. Prof. Norie L. Maniego
Equilibrium

When the quantity consumers are willing and able


to pay equals the quantity producers are willing
and able to sell, the market reaches equilibrium
Independent plans of both buyers and sellers exactly
match
Market forces exert no pressure to change price or
quantity

48
Equilibrium

Market is personal: each consumer and each


producer makes a personal decision about how
much to buy or sell at a given price
Market is impersonal: it requires no conscious
coordination among consumers or producers
Market forces synchronize the personal and
independent decisions of many individual
buyers and sellers

49
Changes in Equilibrium

Once a market reaches equilibrium, that price


and quantity will prevail until one of the
determinants of demand or supply changes

A change in any one of these determinants will


usually change equilibrium price and quantity
in a predictable way

50
Exhibit 6: Effects of an Increase in Demand

51
Exhibit 6: Effects of an Increase in Demand
Assume one of the

Price
S
determinants of demand
changes so that demand
increases from D to D'
After the increase, the g
amount demanded at P9 is P12
30 million – which exceeds c
the amount supplied of 20 9
million pizzas: shortage and
upward pressure on price
As price increases, D'
quantity demanded
D
decreases along the new 0
demand curve, D'. The 20 24 30 Millions of pizzas per week
quantity supplied increases
along the existing supply
curve, S, until the two
quantities are in
equilibrium.
52
Shifts of the Demand Curve

Given an upward-sloping demand curve, an


increase in demand leads to a rightward shift of
the demand curve, increasing both the
equilibrium price and quantity

Alternatively, a decrease in demand leads to a


leftward shift of the demand curve, reducing
both the equilibrium price and quantity

53
Exhibit 7: Effects of an Increase in Supply

54
Exhibit 7: Effects of an Increase in Supply

S
Suppose supply shifts from
S to S'  increases S'
After supply increases, the
amount supplied at the initial
price of P9 increases from 20 c
to 30 million pizzas per week
P9
 a surplus exists
Surplus puts downward 6
d
pressure on price  quantity
demanded increases along the
existing demand curve until a
new equilibrium is reached.

20 26 30
Millions of Pizzas per Week
55
Shifts of the Supply Curve

An increase in supply: a rightward shift of the


supply curve reduces equilibrium price but
increases equilibrium quantity
A decrease in supply: a leftward shift of the
supply curve increases equilibrium price but
decreases equilibrium quantity
Given a downward-sloping demand curve, a
rightward shift of the supply curve decreases
price, but increases quantity
 A leftward shift increases price, but decreases quantity
56
Simultaneous Shifts in Demand and Supply

As long as only one curve shifts, we can say for


sure what will happen to equilibrium price and
quantity

If both curves shift, however, the outcome is less


obvious

57
Exhibit 8: Indeterminate Effect of an
Increase in Both Supply and Demand

a) Shift in demand dominates

Suppose supply and S


demand both increase S'
and that demand
increases more than Price p'
supply as shown by D'
and S'
p
Here both price and
quantity increase
If both demand and D'
supply were to decrease,
for example from D' S' D
to D and S, both 0
Q Q' Units per period
equilibrium price and
quantity would decline.

58
Exhibit 8: Indeterminate Effect of an
Increase in Both Supply and Demand
b) Shift in supply dominates

Again, suppose both S


supply and demand S"
increase but supply

Price
shifts by more than
demand: price
decreases from p to p''
p
and quantity increases
p"
Conversely, if both
supply and demand
decrease with the shift
in supply dominating, D"
price will increase and D
quantity will decrease. 0
Q Q" Units per period
59
Exhibit 9: Effects of Changes in Both
Supply and Demand
Change in Demand
Demand increases Demand decreases

Equilibrium price Equilibrium


Change in Supply

price change price falls.


Supply is indeterminate.
increases Equilibrium
Equilibrium quantity change
quantity increases. is indeterminate.

Equilibrium Equilibrium price


Supply price rises. change is indeterminate.
decreases
Equilibrium Equilibrium
quantity change quantity decreases.
is indeterminate.

60
Disequilibrium Prices

Disequilibrium is the condition in the


market when plans of buyers do not
match plans of sellers

61
Exhibit 11: Price Floors and Price Ceilings

62
Exhibit 11a: Effects of a Price Floor

To achieve higher prices, the


government sets a price floor, a
minimum selling price that is S
above the equilibrium price
Suppose it places a P2.50 per Surplus
gallon price floor for milk P2.50
At this price, farmers supply 24
million gallons per week P1.90
Consumers demand only 14
million gallons  a surplus of 10
million gallons
D
0
14 19 24

Millions of gallons per month


63
Exhibit 11b: Effects of a Price Ceiling

A common example of a price


ceiling is rent control. P1000

Monthly rent
Suppose the market-clearing
rent is P1,000 per month with
50,000 apartments being rented
Now suppose the government P600
decides to set a maximum rent of
Shortage
P600
At this ceiling price, 60,000
rental units are demanded
However, only 40,000 are
supplied, a shortage
D
0
40 50 60
Thousands of rental units per month
64
The algebraic approach to equilibrium.

The algebraic approach to equilibrium analysis is to solve, simultaneously, the


algebraic equations for demand and supply. The demand equation for good X was

and the supply equation for good X was

To solve simultaneously, one first rewrites either the demand or the supply
equation as a function of price. In the example above, the supply curve may be
rewritten as follows:

Substituting this expression into the demand equation, one can solve for the
equilibrium price:

The equilibrium price of good X is found to be $2. Substituting the equilibrium


price of 2 into the rewritten supply equation for good X, one has:

The equilibrium quantity is found to be 4 units of good X.


65
Summary

To have an impact, a price floor must be set above


the equilibrium price and a price ceiling must be set
below the equilibrium price

Effective price floors and ceilings distort markets in


that they create a surplus and a shortage,
respectively

In these situations, various nonprice allocation


devices emerge to cope with the disequilibrium
resulting from the intervention
66
Percentages and Elasticity
Which of the following seem more serious:
 An increase of 50 pesos or an increase of 50% in the
price of a hamburger
 An increase of P100,000 or an increase of 1% in the price
of a new car
Percentage changes are often more important than the
amount of change
 Therefore economists often use elasticities to examine
percentage change or responsiveness

67
Impact of a Change in Supply &
Therefore Price on the Quantity Demanded
Price (dollars per pizza)

40.00 S0
…a S1
large An increase
30.00 fall in in supply
Large price change and
price... brings ... small quantity change
20.00

10.00
… and a small
5.00 increase in quantity
Da

0 5 10 13 15 20 25
Quantity (pizzas per hour)
68
Impact of a Change in Supply…
An increase
40.00 S0
in supply
Price (peso per pizza)

brings ... S1

30.00 … a small Small price change and


fall in price... large quantity change

20.00
15.00
Db
10.00
… and a large
increase in quantity

0 5 10 15 17 20 25
Quantity (pizzas per hour)
69
Price Elasticity
Price Elasticity of Demand
Percentage change in quantity demanded
Ep  Percentage change in price

%Qd
Ep 
%P
The ratio of the two percentages is a
number without units.
70
Price Elasticity
 Example
 Price of oil increases 10%
 Quantity demanded decreases 1%

-1%
Ep   .1
10%

When calculating the price elasticity of demand, we


ignore the minus sign for % change in Q.

71
TYPES OF ELASTICITY
Hypothetical Demand Elasticities for 4 Products
Product % Change in % Change in Elasticity
price (%P) quantity (%QD/%P)
demanded
(%QD)

Insulin + 10% 0% 0  Perfectly


inelastic
Basic
Telephone + 10%  -1% .1  Inelastic
service

Beef + 10%  -10% 1.0 


Unitarily
elastic

Bananas + 10%  -30% 3.0Elastic

72
Price Elasticity Ranges: Extreme Price Elasticities

D P1 never touches
the demand curve
Perfect
inelasticity, Perfect
P1 P1 elasticity,
zero elasticity,
infinite
no matter how
elasticity,
much Price
Price

the slightest
changes, 30
D increase
Quantity
P0 in price will
Price
stays the
lead to
same;
zero sales.
insulin

0 8 0
Quantity Demanded per Year Quantity Demanded per Year
(millions of units) (millions of units)
73
Price Elasticity Ranges
Summary from Table
 Elastic Demand
%Q  %P; EP  1
 Unit Elastic
%Q  %P; EP  1
 Inelastic Demand
%Q  %P; EP  1
74
Elasticity of Demand
 Calculating elasticity
Change in Q Change in P
Ep 
Sum of quantities/2 Sum of prices/2

Change in Q Change in P
or Ep 
(Q1  Q2 )/2 (P1  P2 )/2

Q P
or Ep 
Avg. Q Avg. P

75
The Relationship Between Price Elasticity of Demand and
Total Revenues for Cellular Phone Service

Quantity Total Elasticity


Price Demanded Revenue Ep

P1.10 0 0
21.000
1.00 1 1.0
.90 2 6.333
1.8
.80 3 3.400 Elastic
2.4
.70 4 2.143
2.8
.60 5 1.144
3.0
.50 6
3.0 1.000 Unit-elastic
.40 7
2.8 .692
.30 8
2.4 .467
.20 9 Inelastic
.10 10 1.8 .294
1.0 .158
76
Total Revenue and Elasticity
Total Revenue
=
Price Per Good
X
# of Goods Sold

TR = P X Q

Assumption : Costs are constant


77
1.10 Elastic
demand

.80
Unit

Price
elastic
.55
Inelastic
demand

0 Quantity
55 110
3.00 Maximum
Total Revenue

total revenue
(peso)

When demand
is inelastic,
When demand is price cut decreases
elastic, price cut total revenue
increases total
revenue
Quantity
0 55 110
78
Relationship Between Price
Elasticity of Demand and Total Revenues

Price Elasticity Effect of Price Change


of Demand on Total Revenues (TR)

Price Price
Decrease Increase

Inelastic (EP < 1) TR  TR


Unit-elastic(EP = 1) No change No change Elastic (EP
> 1) TR TR 

79
PRICE DESCRIPTION IMPACT ON TOTAL
Price Elasticity of Demand
ELASTICITY
OF DEMAND
REVENUE

Elastic % change in quantity As price increases, total


demanded is greater than the revenue decreases
% change in price
Inelastic % change in quantity As price increases, total
demanded is less than the % revenue increases also
change in price

Unitary % change in quantity As price


demanded is equal to the % increases/decreases,
change in price total revenue remains
the same

80
Total Revenue and Elasticity
Total Revenue Test:
Estimate the price elasticity of
demand by observing the change in
total revenue that results from a
change in price (ceteris paribus).

Note that revenue is maximized


when elasticity of demand = -1.
81
Factors that Affect the Price
Elasticity of Demand
 Number of close substitutes
 Luxuries and necessities
 Percentage of income spent on a good
 Time period under consideration

82
Determinants of Price
Elasticity of D

 ED is greater:
– The greater the availability of substitutes,
and the more similar the substitutes
– The more important the good as a share of
the consumer’s budget
– The longer the period of adjustment (time)
Price Elasticity of Supply (Es)
 Percentage change in quantity supplied of x/percentage
change in price of x
 Q2-Q1/(Q1+Q2)/2
P2-P1/(P1+P2)/2
Where: Q2= final quantity
Q1=initial quantity
P2=final price
P1=initial price

84
Example:
 Suppose an increase in the price of a good from P4 to P6
increases the quantity supplied from 10 units to 14 units.
 The percentage in the price would be 2/5 or 40 percent, and
the percentage change in quantity would be 4/12 or 33
percent
 Es=0.33/0.40
 Es=0.83

85
Income Elasticity
of Demand
 Demand responsiveness to a change in
consumer income
 Percentage change in demand divided by
the percentage change in income that
caused it
 Inferior goods
– Negative income elasticity
 Normal goods
– Positive income elasticity
Income Elasticity
of Demand
 Normal goods
– Income inelastic
• Elasticity between 0 and 1
• Necessities
– Income elastic
• Elasticity > 1
• Luxuries
Cross-Price Elasticity
of Demand
 Responsiveness of D for one good to
changes in P of another good
 %∆ in demand for one good divided by
%∆ in price of another good
– If positive: substitutes
– If negative: complements
– If zero: unrelated

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