ECON 2000 Chapter : Chapter 6 ECON
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The price of cigarettes has increased dramatically in the last few years. = (cid:9)(cid:9) (cid:25)(cid:5)((cid:26)(cid:27)) (cid:5)((cid:26)(cid:27)) (cid:28) (cid:25)(cid:2) (cid:2)(cid:28) (cid:9) < 0: question: why is price elasticity of demand negative, computing price elasticity (cid:13)/(cid:20)(cid:16)(cid:24)0 ,-. 2(cid:16)/3(cid:24)(cid:16)0. "#%"(cid:9). 4%(cid:31)$ = (cid:9)(cid:9: elastic vs. inelastic, |e| > 1 (cid:1, |e|< 1 (cid:1, |e|< 1 (cid:1) This is due to consumers making changes over the long-run that they couldn"t in the short-run: eg: Revenu = p * q: price changes affect total revenue according to: If p up & demand is inelastic e < 1 (cid:2) If p up & demand is elastic e > 1 (cid:2) If p up & demand is unitary-elastic e = 1 (cid:2: the reverse applies for price decreases. Income elasticity of demand (def): percentage change in quantity demanded divided by percentage change in income. (cid:1)(cid:17)(cid:14)(cid:11)3(cid:23)(cid:16),(cid:5)((cid:2)) = (cid:9) >%"(cid:31);+$ %"(cid:31);+$ (cid:28) (cid:28: question: do you remember definitions of normal and inferior goods, normal good (cid:1)
