ECO100Y1 Lecture Notes - Lecture 4: Normal Good
Document Summary
Price elasticity of demand: the ped is the percentage change in quantity demanded in response to a one percent change in price. Inelastic demand: demand for a good is relatively inelastic if the ped coefficient is less than one. Price elasticity of demand measures the willingness and/or ability to substitute away from a good as the price of it increase. (cid:862). Simply doing without is an option, but it might not always be a very good one. Commodities are classified as necessities (cid:523)inelastic because no close substitutes(cid:524), luxuries (cid:523)more elastic because consumption of luxuries(cid:524) and comforts(cid:523)more elastic(cid:524). (cid:862). availability of substitute (cid:863). time (cid:523)in short run: inelastic, in long run: elastic(cid:524) (cid:864). Measures the percentage change in (cid:1843) in response to a (cid:861)% change in income. Measures the percentage change in (cid:1843) (cid:523)quantity demanded of good a(cid:524) in response to a (cid:861)% change in the price of good b.
