ECON101 Chapter Notes - Chapter 4: Price Ceiling, Normal Good, Inferior Good

• School: University of Waterloo
• Department: Economics
• Course: ECON101
• Professor: Emanuel Carvalho

Document Summary

Price elasticity of demand measures responsiveness of quantity demanded to change in price. The percentage change in the quantity demanded is exactly equal to the percentage change in price. The percentage change in quantity demanded is less than the percentage change in price. The percentage change in quantity demanded exceeds in price. The quantity demand remains the same despite the change in price (doesn"t respond to change in price (medication) The quantity demand can change without a change in the price (ice-cream, seasonal goods) If the commodity is defined as necessary such as food decreased total revenue increase total revenue no change in total revenue. Necessities generally have poor substitutes and inelastic demands. Luxuries generally have many substitutes and elastic demands. Low proportion of consumer income spent on the good (inelastic ep) High proportion of consumer income spent on the good (elastic ep) The greater the time allowed to pass the more elastic the price elasticity of demand.