30-AGO-2007 - • If you increase the price an elastic good...

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Page 58 – equations on equilibrium. Three types of elasticity. Elasticity measures consumer responsiveness to price change and income change. Learn: o Substitutes of compliments, o Luxuries and necessity, o Normal vs. inferior goods. Consumer responsiveness: if the price rises the consumer will think twice about using that service or purchasing good – he will cut back. Test questions: o If you raise the price of an elastic good, revenue falls. o If you lower the price of an inelastic good, revenue falls. o A tendency tries to move towards a point of unitary. o If you raise the price of an inelastic good, revenue increases. o If you lower the price of an elastic good, revenue increases.
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Unformatted text preview: • If you increase the price an elastic good such as Snickers, Butterfinger will have a higher demand. • If you increase the price of milk, the quantity demanded for candy bar will decrease. Dad or mom will not be able to pay for the candy bars – they are substitutes for each other. • Inferior good: o A good that decreases in demand when the consumer income rises. o Irish potato famine: people actually purchased more potatoes because their purchasing power decreased. o Example: spam, hamburger meat, pizza. • Normal good: o We tend to buy more of when our income increases. o The term does not refer to the quality of goods....
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30-AGO-2007 - • If you increase the price an elastic good...

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