ECON 101 Chapter Notes - Chapter 6: Inferior Good, Normal Good, Midpoint Method

• School: U of M
• Department: Economics
• Course: ECON 101
• Professor: Mitchell Dudley

Document Summary

Chapter 6: elasticity responsiveness: responsiveness of consumers to price with the particular number, called the price elasticity of demand. In this approach, calculate changes in a variable compared with the average or midpoint, of the starting and final values: example: or. In general, effect on total revenue can go either way: If price effect is stronger, then tr increases. In quantity effect is stronger, then tr decreases. If they are equal, tr is unchanged by the price increase: price elasticity of demand tells us what happens to total revenue when price changes, whether the price effect or quantity effect is stronger. If demand for good is unit elastic, an increase in price does not change the total revenue. 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.