ECON101 Lecture Notes - Lecture 8: Normal Good, Inferior Good, Economic Equilibrium

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blushworm378

4 Jun 2019

School

University of Waterloo

Department

Economics

Course

ECON101

Professor

Predrag Rajsic

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ECON101 Full Course Notes

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Econ 101 lec 8 elasticities & utility and choice. The income elasticity of demand measures how the quantity demanded of a good responds to a change in income, other things remaining the same. The formula for calculating the income elasticity of demand is. If the income elasticity of demand is greater than 1, demand is income elastic and the good is a normal good. If the income elasticity of demand is greater than zero but less than 1, demand is income inelastic and the good is a normal good. If the income elasticity of demand is less than zero (negative) the good is an inferior good. The cross elasticity of demand is a measure of the responsiveness of demand for a good to a change in the price of a substitute or a complement, other things remaining the same. The formula for calculating the cross elasticity is: Percentage change in price of substitute or complement.

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FILL IN THE BLANKS

Demand for this good is (enter inelastic, elastic or unitary elastic) with respect to price.

This is a (enter normal or inferior) good as income elasticity is (enter less than, greater than or equal) zero, and it is a (enter necessity or luxury) good as income elasticity is (enter less than, greater than or equal) one.

Widgets and gadgets are (enter complements or substitutes), because cross-price elasticity is (enter positive or negative). Widgets and gadgets (enter are or are not) good substitutes because cross-price elasticity is (enter less than, greater than or equal) (enter the numerical value).

blackwalrus507

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

Given the following income elasticities of demand. The values indicate that: if the income elasticity coefficient is negative, it means that:

a. the good is inferior so that if income falls, the quantity demanded for the good will rise.

b. the good is inferior so that if income falls, the quantity demanded for the good will fall.

c. the good is inferior so that if price falls, the quantity demanded for the good will rise.

d. the good is normal so that if price falls, the quantity demanded for the good will rise.

indigoalpaca102

ECON101 Lecture Notes - Lecture 8: Normal Good, Inferior Good, Economic Equilibrium

ECON101 Full Course Notes

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