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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