4.4 Other Demand Elasticities Flashcards
What are factors other then price can lead to changes in quantity demanded. How can we measure their effects?
Changes in income and changes in the prices of other products also lead to changes in quantity demanded, and elasticity is a useful concept in measuring their effects.
What is income elasticity of demand?
income elasticity of demand (ηY)(ηY)
A measure of the responsiveness of quantity demanded to a change in income.
What is a normal good?
normal good
A good for which quantity demanded rises as income rises—its income elasticity is positive.
What is an inferior good?
inferior good
A good for which quantity demanded falls as income rises—its income elasticity is negative.
What is the income elasticity of normal goods?
The income elasticity of normal goods can be greater than one (elastic) or less than one (inelastic), depending on whether the percentage change in quantity demanded is greater or less than the percentage change in income that brought it about.
What are the conditions of a product being income inelastic?
If income elasticity is positive but less than one, we say the demand for this good is income inelastic.
When is a product income elastic?
If income elasticity is positive and greater than one, we say the demand for this good is income elastic.
What are the conditions of a “necessity?”
necessities
Products for which the income elasticity of demand is positive but less than one.
What is a luxury?
luxuries
Products for which the income elasticity of demand is positive and greater than one.
What happens to income elasticity the more necessary an item is?
The more necessary an item is in the consumption pattern of consumers, the lower is its income elasticity.
How do income elasticities vary with level of consumer income?
Income elasticities for specific products also vary with the level of a consumer’s income. When incomes are low, consumers may eat almost no green vegetables and consume lots of starchy foods, such as bread and pasta
when incomes are higher, they may eat cheap cuts of meat and more green vegetables along with their bread and pasta;
when incomes are higher still, they are likely to eat higher-quality and prepared foods of a wide variety.
