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ECON 1B03 Lecture Notes - Lecture 5: Economic Equilibrium, Demand Curve, Inferior Good

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4 Oct 2018

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ECON 1B03 verified notes

ECON 1B03 Lecture Notes - Lecture 4: Potash, Comparative Advantage, Opportunity Cost

ECON 1B03 Lecture Notes - Lecture 5: Economic Equilibrium, Demand Curve, Inferior Good

ECON 1B03 Lecture Notes - Lecture 6: Demand Curve, Inferior Good, Normal Good

Document Summary

Email the ta if you have any issues or questions about your mark. Dry, but something economists use all the time. Measures how responsive quantity demanded or quantity supplied is when one of the determinants of it changes. Big ones: price, supply: how these things variate. Elastic something that can have a big change to even a little stimulus. What happens when the price of a related good changes, or the demand changes, or income, etc. Coefficients between -1 and 1: inelastic: little changes in determinants won"t have a big reaction. Coefficients < -1 or > 1 are elastic: very responsive. It"s possible that percentage change in quantity demanded exactly equals change in price. Ep: price elasticity of demand: law of demand: always in the opposite direction, always a negative sign. Can drop the minus sign, just take the absolute value. En: income elasticity of demand: here, the minus sign does make a difference.

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Related Questions

1. When demand is inelastic, a decrease in price will cause

a. an increase in total revenue.

b. a decrease in total revenue.

c. no change in total revenue but an increase in quantity demanded.

d.no change in total revenue but a decrease in quantity demanded.

2. For which of the following types of goods would the income elasticity of demand be positive and relatively large?

a. all inferior goods

b. all normal goods

c. goods for which there are many complements

3. Which of the following should be held constant when calculating the income elasticity of demand?

a. the quantity of the good demanded

b. the price of the good

d. All of the above should be held constant.

4. Suppose goods A and B are substitutes for each other. We would expect the cross-price elasticity between these two goods to be

c. either positive or negative. It depends on whether A and B are normal goods or inferior goods.

d. either positive or negative. It depends on whether the current price level is on the elastic or inelastic portion of the demand curve.

5. As the price elasticity of supply increases, the supply curve

a. becomes flatter

b. becomes steeper

c. becomes downward sloping.

d. shifts to the right.

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