ECON 1 Lecture Notes - Lecture 10: Opportunity Cost, Price Elasticity Of Demand, Independent Goods

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Substitutability the larger the number of substitute goods the greater the price elasticity of demand. Proportion of income- other things equal, the higher the price of a good relative to consumers incomes the greater the price elasticity of demand. Price elasticity for low priced items tends to be low. A price increase of higher priced goods e. g. autos or housing means additional expenditures. The price elasticity is high: luxuries vs. necessities- luxuries are normally the price demand elasticity. Necessities pricing on demand is inelasticity: time- product demand is more elastic the longer the time period under consideration. Consumers often need time to adjust to changes in prices: applications of price elasticity on demand: Large crop yields are highly inelastic- they tend to depress the prices of the crops and the total revenue when the supply is high yielding. Example: price increases from to or and supply from 10 units to 14 units.

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