ECON 120W Lecture Notes - Lecture 4: Luxury Goods
1 Oct 2017
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Document Summary
Price inelasticity food, wheat that people need them anyway. Addition: if the slope of demand is steep, more likely the slope of supply does so too: change in price > change in demand. The elasticity might be affected by: business strategy, tax policy, environment policy, international issue. Inelasticity demand e < 1, steep line (vertical line: elasticity demand e > 1, flat line (horizontal line) Function determines the elasticity: close to alternatives, necessities v. s. luxury, market (other product that might have the effect on, timeline (market need time to adjust the quantity and price, short-term and long-term has different price elasticity. Government tend to impose taste on those have more inelastic demand product. Cross elasticity of demand = % change in # of demand of product x/% change in # of demand of. If x & y is competitor, xed is positive. If x & y is complement, xed is negative. If x & y is unrelated, xed is 0.
