ECO100Y1 Lecture Notes - Lecture 4: Inferior Good, Normal Good
Document Summary
% change in quantity demanded / percent change in income: normal good: income elasticity > 0. *most goods are normal goods, few goods are inferior goods i. e. bus travel. Demand of inferior goods (shifts left) (price) elasticity of supply: percent change in quantity supplied/percent change in price. Terminology: perfectly in elastic: elasticity = 0 inelastic: Perfectly inelastic supply: quantity of cell phone frequencies. Perfectly elastic supply: any good for which firms can produce unlimited quantity at unchanged cost. Police cannot observe quantity of heroin bought and sold. *although market for heroin is illegal, still reflects laws of supply and demand. Demand is inelastic (few substitutes: reduction in quantity demanded is small relative to the increase in price, total expenditure * on heroin increases (p1 * q1 > p0 * q0, heroin-related crime increases. In short run, the amount of heroin- related crime will rise.
