ECON 1B03 Lecture Notes - Lecture 6: Demand Curve, Inferior Good, Normal Good

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7 Oct 2018

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ECON 1B03 Lecture Notes - Lecture 5: Demand Curve, Hyperbola

ECON 1B03 Lecture Notes - Lecture 6: Demand Curve, Inferior Good, Normal Good

ECON 1B03 Lecture Notes - Lecture 7: Economic Surplus, Reservation Price, Economic Equilibrium

Document Summary

Income elasticity of demand: measures how much quantity demanded of a good responds to a change in consumers income. It"s computed as % change in quantity demanded divided by % change in income. If we are given % changes in income and corresponding changes in qd, we use formula: If we are given 2 levels of income and their corresponding qd, we have to calculate % percentage changes in qd and income. Good consumers regard as necessities tend to be income inelastic - food, clothes, If en > 0 good is normal good, as n increases so does qd. If en < 0 good is inferior good, as n decreases qd increases. If en is b/w -1 and 1, good is income inelastic. If en is > than 1 / less than -1, good is income elastic housing. Goods consumers regard as luxuries tend to be income elastic - vacations, sport cars, jewelry.

Related Questions

Discussion #1

The law of demand states that a fall in the price of a good raises the quantity demanded, and the increase in price leads to a decrease in quantity demanded. The price elasticity of demand measures the responsiveness of the quantity demanded to a change in price. Demand for a good is said to be elastic if the quantity demanded responds substantially to changes in the price, and the percentage change in quantity demanded is greater than the percentage change in price. Demand is said to be inelastic if the quantity demanded responds only slightly to changes in the price, which indicates that the percentage in price is greater than the percentage in quantity demanded.

However, the extent of responsiveness of quantity demanded to a change in price depends on the nature of a particular good or service in the market. The price elasticity of demand partly depends on the availability of close substitutes. When a large number of substitutes are available, consumers respond to a higher price of a good by buying more of the substitute goods and less of the relatively more expensive good. In addition, goods or services that are considered necessities tend to have less elastic (more inelastic) demand, whereas goods or services that are considered luxuries have more elastic (less inelastic) demands.

Explain why the demand for the good or service provided by the organization you work for is elastic or inelastic. How does this influence pricing decisions?
Provide examples on how the availability of close substitutes affects price elasticity of demand.
Give specific examples of necessities or luxuries, and explain how they affect price elasticity of goods or services.

Please answer ALL bulletins and place the answers under the correct bulletin.

2. Income?Qd of Hamburger??Qd of Steak

Per month? per month?per month

Month 1?$750?8 lbs.?2 lbs.

Month 2?$950? 5 lbs.?4 lbs.

a. What is the income elasticity of demand for hamburgers?

b. What is the income elasticity of demand for steak?

c. From our study of demand in an earlier chapter, we know ___________is a normal good, whereas _______________is an inferior good.