ECON 2000 Chapter : Econ Chapter 5 My Outline
Document Summary
The concept of elasticity: elasticity is the measure of the responsiveness of one variable to another, the greater the elasticity, the greater the responsiveness. Inelastic demand: quantity demanded does not respond strongly to price changes, price elasticity of demand is less than one. Elastic demand: quantity demanded responds strongly to changes in price, price elasticity of demand is greater than one. Demanded is elastic if percentage change is quantity is greater than the percentage change in price. Quantity demanded changes proportionately to price changes. Number of substitutes a good has is affected by several factors. Normal goods are those whose consumption increase with an increase in income: necessity: 0< eincome>0, luxury: eincome> 1. Inferior goods are those whose consumption decreases with an increase in income, eincome< 0: substitutes are goods that can be used in place of another, Ecross-price >0: complements are goods that are used in conjunction with one another,