01:220:102 Lecture Notes - Lecture 9: Inferior Good, Normal Good

• School: Rutgers University
• Department: Economic
• Course: 01:220:102
• Professor: W O N H Y U N G Lee

Document Summary

Income elasticity of demand: the percent change in the quantity of a good demanded when a consumer"s income changes divided by the percent change in the consumer"s income. When the income elasticity of demand is positive, the good is a normal good. In this case, the quantity demanded at any given price increases as income increases. When the income elasticity of demand is negative, the good is an inferior good. In this case, the quantity demanded at any given price decreases as income increases. Price elasticity of supply: a measure of the responsiveness of the quantity of a good supplied to the price of that good. It is the ratio of the percent change in the quantity supplied to the percent change in the price as we move along the supply curve. Perfectly inelastic supply: when the price elasticity of supply is zero, so that changes in the price of the good have no effect on the quantity supplied.