4&5- market D & elasticity Flashcards
income elasticity of demand, ε
% change Qd response to given % change in income
ε equation
% change Q / % change Y
ε>0
normal good, Y increase = more of good bought
1 > ε > 0
necessary good
ε > 1
luxury good
ε < 0
inferior good
price elasticity, |ε |
D responsiveness to change in P
price elasticity equation
(%∆Q)/(%∆P )
|ε |>1
elastic D
|ε | = 1
unit elastic D
|ε |<1
inelastic D
what is used to calculate the shape of elasticity curve
engel curve
factors determining price elasticity
availability of substitutes, length of adjustment period, proportion of budget a good represents
cross price elasticity
how the change in P of one good affects D of another
cross price elasticity equation
(%∆Q(g1)) / (%∆P (g2) )
income elasticity determines what types of goods
normal or inferior
cross-price elasticity determines what types of goods
substitute or complement
MRS equation
dq2/dq1 = -MU1 / MU2
is utility constant or variable across IC
constant, so dU = 0
MRS is what part of IC
gradient / slope
how to calculate marginal utility
partial derivative of utility
how to calculate MRS
total derivative of utility
