ECON 1050 Chapter 4: Chapter 4- Elasticity.docx

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The proportion of income spent on the good: other things remaining the same, the greater the proportion of income spent on a good, the more elastic (or less inelastic) the demand for it. Since pizza and burgers are substitutes, and pizza and soda are complements. If the price of a complement of pizza rises, the demand for pizza decreases. Resource substitution possibilities: some goods and services can be produced only by using unique or rare productive resources, those items have a low/ zero elasticity of supply, other goods and services can be produced by using commonly available resources that could be allocated to a wide variety of alternative tasks ex: items with high elasticity of supply, ex: van gogh painting, when the good is produced in many different countries, the supply of the good is highly elastic, the quantity produced can be increased but only by incurring a higher cost.

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