AGEC 21700 Lecture Notes - Lecture 11: Perfect Competition, Luxury Goods, Inferior Good

• School: Purdue University
• Department: Agricultural Economics
• Course: AGEC 21700
• Professor: Weinstein Michael

Document Summary

Income elasticity: the percentage change in quantity given a percentage change in income. Q = ( q/ i)(i/q) > 0: normal good (tennis shoes) Q = ( q/ i)(i/q) < 0: inferior good (synthetic wool) Q = ( q/ i)(i/q) > 1: luxury good (jewelry) Q = ( q/ i)(i/q) < 1, but > 0: necessary good (underwear) The law of one price: given a perfectly competitive market, there is only one market price for a commodity. Agents have no incentive to alter the market price they face for a product (agents take the price as give; price takers) Explicit costs: costs of employing inputs not owned by the firm. Implicit costs: costs charge to inputs owned by the firm. Fixed cost: costs associated with input that are fixed. Variable cost: costs associated with input that are variable. Opportunity cost, time. (the sum of explicit and implicit costs)