ECON 201 Lecture Notes - Lecture 9: Butters Stotch
Document Summary
Chapter 7 continued: p & tr in opposite directions. P (increases) x qd (decreases) = tr (decreases) New notes : p changes and tr remains constant. P (increases) x qd (decreases) = tr (constant) There are different degrees of elasticity over different intervals: ed increases at higher price: Income elasticity: defi(cid:374)itio(cid:374)s: respo(cid:374)si(cid:448)e(cid:374)ess of d(cid:859)ers (cid:894)buyers(cid:895) of produ(cid:272)t, to a (cid:272)ha(cid:374)ge i(cid:374) i(cid:374)(cid:272)o(cid:373)e (cid:894)(cid:374)ot pri(cid:272)e(cid:895) Rule: do not take absolute value: formula: ei = % change in qd / % change income, positi(cid:448)e nu(cid:373)(cid:271)er: (cid:858)nor(cid:373)al good(cid:859) Ei- % change qd / % change income: the numerator and denominator move in the same direction: as income increases, the qd will also increase. As income decreases the qd will also go down. However: there are two categories of normal goods. [positive # < 1: the good is a necessity- small % change qd. % change qd < % change income (salt, eggs, butters)
