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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
Incomeconsumption 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.
 Spring '13
 PaulRuud
 Microeconomics, Econometrics

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