Economics 1021A/B Lecture Notes - Lecture 4: Normal Good, Inferior Good, Luxury Goods
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ECON 1021A/B Full Course Notes
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Supply decreases = equilibrium price rises, equilibrium quantity rises. Price elasticity of demand: units-free measure of the responsiveness of the quantity demanded of a good to a change in its price when all other influences on buying plans remain the same. Price elasticity of demand = percentage change quantity demanded percentage change price. We express the change in price as a percentage of the average price and the change in quantity demanded as a percentage of the average quantity. Elasticity ratio of two percentage changes. Elasticity = unit free measure because the percentage change in each variable is independent of the units in which the variable is measured: ratio of two percentages is a number without units. Price of good rises = quantity demanded decreases: positive change in price = negative change in quantity demanded, price elasticity of demand is a negative number, magnitude = absolute value. Tells us how responsive the quantity demanded is.