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microbook_3e-page51 - 0 < < 1 when...

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… and what about the income of consumers? x So you’re still selling cream cheese, but now the income of your consumers goes up (prices held constant) x What’s going to happen to demand for your cream cheese? x Since your consumers now have more money to spend, an increase in the income of your consumers will probably increase the demand for cream cheese. x The income elasticity of demand for cream cheese is: cheese c. cheese c. cheese c. Q Income ǻ Income ǻ Q Ș ¡ x this elasticity will be positive since 0 ǻ Q 0 ǻ Income cheese c. ! ¢ ! x so let’s say: 0.75 cheese c. Ș , then a one percent increase in the income of consumers causes a 0.75 percent increase in the demand for cream cheese Income Elasticities x Normal Goods can be broke down into: o Income-Inelastic Normal Goods
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Unformatted text preview: 0 < < 1 when income increases by 1% (prices held constant) demand for such goods increases less than 1% o Unit-Elastic Normal Goods = 1 when income increases by 1% (prices held constant) demand for such goods increases by 1% o Income-Elastic Normal Goods 1 < when income increases by 1% (prices held constant) demand for such goods increases more than 1% these goods are also called: Luxury Goods x Inferior Goods < 0 o when income increases by 1% (prices held constant) o demand for such goods FALLS x However, no good can be inferior over all ranges of income, otherwise it would never be consumed at all. Page 51...
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This note was uploaded on 12/29/2011 for the course ECO 311 taught by Professor Willis during the Fall '10 term at SUNY Stony Brook.

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