topic3_consumer behaviorII

she bought more hamburger but as she became

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Unformatted text preview: Gail was poor and her income increased increased.. – …she bought more hamburger • But as she became wealthier and her wealthier and her income rose… – ….she bought less hamburger and more steak. Y3 L3 Income-consumption curve 2 Y2 L e3 1 Y1 L I3 e2 e1 I2 I1 Hamburger per year (b) Engel Cu rve Y, Income A good That Is Both Inferior good That Is Both Inferior and Normal All other goods per year (a) Indifference Curves and Budget Constraints Y3 E3 Y2 E2 Engel curve Y1 E1 Hamburger peryear 14 2. Elasticity – sensitivity of demand to the change of factors • Elasticity – In general, measures the responsiveness of one variable to change in another variable – To be unit free, usually expressed as a ratio of % be unit free usually expressed as ratio of change – Price elasticity of demand, income elasticity, elasticity of demand income elasticity cross price elasticity, elasticity of supply 15 (Own) price elasticity of demand (Own) price elasticity of demand • It is generally negative (the law of demand), but conventionally the negative sign is omitted. % in QD % in p Q/Q p/ p Qp pQ • Point elasticity vs arc elasticity Q p1 p2 p Q1 Q2 Q2 Q1 p1 p2 p2 p1 Q1 Q2 16 (Own) price ela...
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This document was uploaded on 03/16/2014 for the course ECONOMICS 106 at Oxford University.

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