Thursday, September 27, 2007

Cobb Douglas and Elasticity of Demand

I am a high school student in Canada taking an Economics course. This really all new to me and I have absolutely no clue how to answer this question.

Derive the income, cross price and own price elasticiticies for a Cobb Douglas utility function. What general feature of Cobb Douglas means that the demand curves must always be unit elastic?

  • I'm afraid Cobb Douglas function is not on the UK syllabus, I don't even remember doing it at University. These are just a few points, but, I'm afraid you will need to look elsewhere
  • Unitary elasticity of demand means the % change in Q.D equals the % change in Price. Therefore, to have unitary elasticity of demand it is necessary to have a bowed demand curve and not a straight line. The elasticity of demand will vary on a straight demand curve.
  • The other way is to measure elasticity of demand by measuring the slope of a demand curve. This can be done by differentiating the demand equation.
Elasticity of Demand And Cobb Douglas

No comments: