ECON 1010H Lecture Notes - Lecture 3: Normal Good, Inferior Good, Marginal Utility
Document Summary
Units free measure of the responsiveness of the quantity demanded of a good to a change in its price. Formula: percentage change in quantity demanded/percentage change in income. Measures how the quantity demanded of a good responds to a change in income. Formula for calculating the income elasticity of demand is : percentage change in quantity demanded/percentage change in income. If income elasticity of demand is greater than 1, demand is income elastic and the good is a normal good. If the income elasticity of demand is great than zero but less than one, demand is income inelastic and the good is a normal good. If the income elasticity of demand is les s than zero (negative) the good is an inferior good. Cross elasticity of demand is a measure of the responsiveness of demand for a good to a change in the price of a substitute or complement.