ECON 1000 Lecture Notes - Lecture 5: Normal Good, Complementary Good, Inferior Good
Document Summary
Basic idea: elasticity measures how much one variable responds to changes in another variable (measure of how much buyers and sellers respond to changes in market conditions) When studying how some event or policy affects a market, can discuss not only direction of effects but their magnitude as well. Definition: elasticity is a numerical measure of the responsiveness of qd or qs to one of its determinants. The price elasticity of demand and its determinants. Availability of close substitutes (high elasticity if available) How broad or narrow the good is define (cars vs. japanese cars vs. Time horizon (short term vs. long term effects, response different) Price elasticity of demand= % change in qd (quantity demanded)/ % change in p (price) Price of elasticity of demand measures how much qd responds to a change in. 10% increase in price of cup of coffee increases the number of cups people buy to fall to 20%