ECON 1010 Lecture Notes - Luxury Goods, Durable Good, Demand Curve

55 views3 pages

jadeplatypus42

29 Apr 2013

School

University of Manitoba

Department

Economics

Course

ECON 1010

Professor

Sarrah Vakili

For unlimited access to Class Notes, a Class+ subscription is required.

ECON 1010 Full Course Notes

Verified Note

1 document

Document Summary

Definition of income elasticity of demand:income elasticity of demand measures the relationship between a change in quantity demanded for good x and a change in real income. The formula for calculating income elasticity: % change in demand divided by the % change in income. Normal goods: normal goods have a positive income elasticity of demand so as consumers" income rises, so more is demanded at each price level i. e. there is an outward shift of the demand curve. Normal necessities have an income elasticity of demand of between 0 and +1 for example, if income increases by 10% and the demand for fresh fruit increases by 4% then the income elasticity is +0. 4. Demand is rising less than proportionately to income. The income elasticity of demand in this example is +2. 0. Demand is highly sensitive to (increases or decreases in) income. Inferior goods have a negative income elasticity of demand.

Related Questions

Suppose that business travelers and vacationers have the following demand for airline tickets

Price Qty. Demanded (business travelers) Qty. Demanded (vacationers)

price	Tickets Demanded (business travelers)	Tickets Demanded (Vacation travelers)
150	2100	1000
200	2000	800
250	1900	600
300	1800	400

1A. As the price of tickets rises from $200 to $250, what is the price elasticity of demand for Business Travelers. Is demand elastic or inelastic? Show your work

Illustrate the demand curves on the graph.

1B. As the price of tickets rises from $200 to $250, what is the price elasticity of demand for Vacationers. Is demand elastic or inelastic? Show your work!

1C. Why might vacationers have a different elasticity than business travelers?

Suppose that your demand schedule for compact disks is as follows:

price	quantity of demanded if income = 10,000	quantity of demanded if income = 12,000
8	40	50
10	32	40
12	24	30
14	16	20
16	8	12

2A. What is the numerical income elasticity of demand as your income increases from $10,000 to $12,000 if the price of the CDs is $12*. Is this product a normal good or an inferior good based on your calculation? Show your work!

2B. What is the numerical income elasticity of demand as your income increases from $10,000 to $12,000 if the price of the CDs is $16*. Is this product a normal good or an inferior good based on your calculation? Show your work!

salmoncoyote141

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

d. luxuries

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

c. income

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

a. positive.

b. negative.

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.

brownsea-lion330

6) 1This set of questions focus on elasticity.

a. Johnâs demand for bananas increases from 4 bananas to 6 bananas when his hourly wage rises from $18 to $30. What is his income elasticity of demand for bananas? Use the standard formula of percentage change to calculate this income elasticity. Are bananas normal or inferior goods for John?

b. Johnâs demand for bananas dropped from 10 bananas to 6 bananas when the price of apples decreased from $6 per apple to $5 per apple. What is his cross-price elasticity of bananas for apples? Use the arc elasticity formula for the percentage change to calculate this cross-price elasticity. Based upon your value for the cross-price elasticity of demand of bananas for apples, are these two goods substitutes or complements? Explain your answer.

c. Suppose at $4 per banana, Ben can supply an infinite quantity of bananas, but he will supply none at a price below $4. What do you know about his supply when price rises above $4? What is Benâs price elasticity of supply?

turquoisecat41

ECON 1010 Lecture Notes - Luxury Goods, Durable Good, Demand Curve

ECON 1010 Full Course Notes

Document Summary

Get access

Related Documents

ECON 1010 Lecture Notes - Lecture 29: Normal Good, Negative Number

ECON 1010 Lecture Notes - Lecture 11: Economic Surplus, Demand Curve, Market Power

ECON 1010 Lecture Notes - Lecture 27: Midpoint Method, Demand Curve

Related Questions