ECN 203 Lecture Notes - Lecture 4: Negative Number, Normal Good, Excise
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Mu 1 /p 1 : consumers maximizes their tu by: mu/$=mu2/, $ spent on each good = price. = = mu n /p n : suppose p of good 1 increases from p1 to p2, reoptimize q1 decrease-- mu1/p1 will increase, mu 1 /p 1 . = mu 2 /p 2 : p1 increase-- qd decrease. Price elasticity-- measures how quantity demanded of a good responds to a change in its price. Elastic-- quant. demanded is more responsive to changes in price. Inelastic- quant. demanded is less responsive to changes in price. Of airline tickets goes down by for airline tickets, Total revenue of a firm equals (price of good) x (quantity. Elastic: tr if p or tr if p . Inelastic: tr if p or tr if p . 2 goals: reduce consumption of the good- demand elastic, raise tax revenue toward gov"t- demand inelastic. D --- if taste rises, demand rises: if taste falls, demand falls.
