ECON 1B03 Lecture 5: Lecture 5

• School: McMaster University
• Department: Economics
• Course: ECON 1B03
• Professor: Hannah Holmes

Document Summary

Income elasticity of demand measures how much the quantity demanded f a good responds to a change in consumers" income. If ei is between -1 and 1, the good is income inelastic. If it is greater than 1 or less than -1, the good is income elastic. Goods consumers regard as necessities tend to be income inelastic. Goods consumers regard as luxuries tend to be income elastic. Denoted eab, cross price elasticity measures the response of qd of a good a to a change in price of good b The plus or minus sign matters here as well. If the cross-price elasticity equals 0, the goods are not related. A measure of how much the q supplied of a good responds to a change in the price of that good. Perfectly inelastic supply = supply curve is vertical (ex. Mona lisa no matter what the price is)