TUTORIAL 4 - TUTORIAL 4 WEEK 5 ELASTICITY Friday 2nd April...

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TUTORIAL 4 WEEK 5 ELASTICITY Friday 2 nd April this week is a public holiday. Students in classes scheduled on this day should attend any other tutorial this week. Tutors of Friday classes should not schedule the Submission Question this week. Reading: Text: Ch 4 Review Questions: 1, and 2 1 Price changes affect quantity demanded for two reasons: they alter the attractiveness of substitute goods and they alter the real value of consumers’ income, or their purchasing power. These are called the substitution and the income effects of a price change. The second effect grows larger as the share of consumers’ budgets spent on the good increases. For example, a 10 per cent change in the price of salt, a good on which most consumers spend very little, will have a small effect on the purchasing power of a consumer’s income. At the other extreme, a similar change in price for a good such as housing, which comprises a large part of most people’s income, will have a large effect on the purchasing power of a consumer’s income. A consumer will find it worthwhile
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TUTORIAL 4 - TUTORIAL 4 WEEK 5 ELASTICITY Friday 2nd April...

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