ECON101 Lecture Notes - Lecture 8: Indifference Curve, Economic Surplus, Demand Curve
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Price elasticity of demand along a linear demand curve: Price of the good times quantity sold. Elasticity of demand and total revenue (same for expenditure): 1% price cut increases quantity sold by more than 1% total revenue increases. 1% price cut increases quantity sold by less than 1% total revenue decreases. 1% price cut increases quantity sold by 1% total revenue unchanged. Measures how the quantity demanded of a good responds to a change in income. Income elasticity of demand > 1: demand is income elastic. 0 < income elasticity of demand < 1: demand is income inelastic good is a normal good. Income elasticity of demand < 0: inferior good. Measure of the responsiveness of demand for a good to a change in the price of a substitute or a complement. % price of a substitute or complement. Measures responsiveness of the quantity supplied to a change in the price of a good.