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Ed=%∆Qd%∆P
Elastic >1
Inelastic <1
Perfectly elastic ∞
Perfectly inelastic ∞
P↓$16 to $12
Q↑400 to 440 =40420414=.09.29=.31
Demand is inelastic
Elastic- P↑TR↓
P↓TR↑
Inelastic - P↑TR↑
P↓TR↓
Test to see if goods X and Y are substitute or complimentary goods (p. 124)
Pepsi Film
P↑ Coke P↑ Cameras
P↓ Coke P↓ Cameras
-The supply becomes more elastic over time. Time is the only determinant of
elasticity of supply. (The more time a producer has, the greater the resource
shiftability.)
Normal good - a change in income will change the demand curve the same way
Ex: Steak
Income↑ Income↓
Inferior Good – a change in income will change demand curve the opposite way
Ex: Beans
Income ↑ Income↓
Ei=%∆Qd%∆Income
Consumer Habits
EX:
Units of Product MUa MUaPa MUb MUbPb
I = $10 1 10 10 24 12
Pa=$1.00 2 8 8 20 10
Pb=$2.00 3 7 7 18 9
4 6 6 16 8
5 5 5 12 6
6 4 4 6 3
7 3 3 4 2
Budget Line (constraint) – shows us what is attainable for the consumer to buy,
when we know income and price of good A and B
-Income changes, curve shifts
-Price changes, curve takes on a new slope
EX (Budget Curve):
Income = $12
Price of goods = A-$1.50 B-$1.00
Indifference Curve – shows the various combinations of goods A and B that will
provide equal satisfaction or total utility for the consumer