lectur18 - Income Elasticity of Demand Income Elasticity of...

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Unformatted text preview: Income Elasticity of Demand Income Elasticity of Demand And And Cross-Price Elasticity of Demand Cross-Price Elasticity of Demand Income Elasticity of Demand Income Elasticity of Demand E I = % ∆ Q d / % ∆ I d Measures the sensitivity of DEMAND to changes in disposable income . Engel Curve: Engel Curve: Shows the relationship between quantity demanded and disposable income given a constant price. Engel Curve: Normal Good Engel Curve: Normal Good Disposable Income Qd/ut Engel Curve for a Normal Good E I > 0 Luxury Goods Luxury Goods Luxury Goods are Normal Goods but they have an E I >= 1 Quantity demanded is very senstive to changes in disposable income “ “ Necessities” Necessities” “Necessities” are Normal Goods but 0 < E I < 1 Quantity demand is not very sensitive to changes in disposable income Engel Curve: Inferior Good Engel Curve: Inferior Good Disposable Income Qd/ut Engel Curve for an Inferior Good E I < 0 ❖...
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This note was uploaded on 12/06/2011 for the course ECON 101, 102, taught by Professor Staff during the Fall '10 term at Rutgers.

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lectur18 - Income Elasticity of Demand Income Elasticity of...

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