2.10.10, Lecture Notes, ECON 201

2.10.10, Lecture Notes, ECON 201 - 2.10.10 Lecture Notes...

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2.10.10, Lecture Notes, ECON 201 Nonlinear Demand – Price Elastic - Demand curve is relatively flat - Consumers are sensitive to the price Nonlinear Demand – Price Inelastic - Demand curve is relatively steep - P x Q is represented by the area of the rectangle enclosing the price along the y axis versus the quantity along the x axis - When Price goes down, area of NEW rectangle is smaller than old, so revenue goes DOWN. At the midpoint of a linear demand curve: - Price Elasticity = 1 - Total revenue is highest - Marginal revenue = 0 Demand for water is inelastic. We left off last time with… Income Elasticity of Demand - Income Elasticity = 1 o Check Notes from Last time. INCOME ELASTICITY OF DEMAND - Income elasticity > 1 (“Luxury”) o 10% Increase in income = >10% Increase in Consumption o Share of income spent on this commodity rises as income rises higher-income consumers spend a larger fraction of income on this commodity. -
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This note was uploaded on 10/13/2011 for the course EC 201 taught by Professor Haider during the Spring '10 term at Michigan State University.

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2.10.10, Lecture Notes, ECON 201 - 2.10.10 Lecture Notes...

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