ECON101 Lecture Notes - Lecture 5: Demand Curve, Inferior Good, Normal Good
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Measures the responsiveness of q*d due to change in the products own price (ceterius paribus) Consumers don"t have enough time to look for a cheaper alternative. Consumers have time to look for a cheaper alternative. The fraction of income spent on the good. Small fraction of income is spent on the good (i. e. 25 cents to 50 cents) = inelastic. Large fraction of income is spent on the good (i. e. to 000) = elastic. Elasticity of demand changes from one point to another on the demand curve depending on the price level. The higher the price, the higher the ed. Relation between price (p), total revenue (tr), and ed. Total revenue = total expenditure = p x q. To get more tr, a smart producer should increase price if demand is inelastic and decrease price if demand is elastic. It measures the responsiveness of q*d from a certain good due to the change in price of another good.