ECN 201 Lecture Notes - Lecture 13: Inferior Good, Normal Good
Document Summary
3/14/16: cross elasticity of demand, measures responsiveness of qd of a good to a change in the price of another good, formula: ec = % qd / % p = ( qd)/[(q2+q1)/2] / ( p)/[(p2- Ec of vegetable oil: (114 100) / [(114+100)/2] = 14/107 = 0. 13. Ec of butter: (12 10) / [(12+10)/2] = 2/11 = 0. 18. Since ec > 0, the items are substitutes because as the price of butter rises from to , the demand for vegetable oil went up 100 units to 114 units. Measures responsiveness of the quantity demands of a good to a change in income. Price of butter: formula: ey = % qd / % y = ( qd)/[(q2+q1)/2] / ( y)/[(y2- Y1)/2: ey > 0 means it is a normal good, ey < 0 means it is an inferior good c. Y2 = (145 130) / [(145+130)/2] = 15/148 = 0. 11.
