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When the demand for product is unitary elastic,
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a price change will not affect total revenue
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Income elasticity
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The percentage change in the quantity of a product demanded divided by the percentage change in consumer income that caused the change in quantity demanded
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Inferior good
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Negative income elasticity of demand
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Height of demand curve
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Equal to marginal benefit
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A consumer will purchase until
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MB=Price
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Substitution and income effect
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Causes consumers to purchase more of a good as its price falls and less of a good as its price rises
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Price elasticity of demand
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Percentage change in quantity demanded divided by the percentage change in price
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Unitary elasticity
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If the price elasticity is exactly 1, then the demand is said to be of ___________. Sales revenue (Price times quantity sold) is constant.
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Products with inelastic demand
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Salt, matches, toothpicks, airline travel in short run, gasoline in long and short run, coffee, fish, physician services, legal services in the short run
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Unitary elastic products
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Movies, housing in the long run, shellfish, Private education, tires in the short and long run, radio and television receivers
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Products with an elastic demand
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Restaurant meals, foreign travel in the long run, airline travel in the long run, fresh green peas, automobiles in the short run, fresh tomatoes, hospital care in California, Chevrolet automobiles
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Second law of demand
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The response of buyers will be greater after they have had time to adjust more fully to a price change
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Availability of substitutes
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is a primary determinant of price
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Perfectly inelastic
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A demand curve that is completely vertical
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When demand is inelastic the change in price will dominate
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And the price and total expeditures will change in the same direction
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When demand is unitary elastic
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Total expenditures will remain unchanged as price changes
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When demand is elastic
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The price and expenditures will move in opposite directions
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Normal good
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The good that has a positive income elasticity, so that as consumer income rises, demand for the good rises too
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Products with a low income elasticity
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Margarine, fuel, electricity, fish, food, tobacco, hospital care
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Products with high income elasticity
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Private education, new cars, recreation and amusements, alcohol
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Inferior goods
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A good that has a negative income elasticity, so that as consumer income rises, the demand for the good falls
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Price elasticity of supply
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The percentage change in quantity supplied, divided by the percentage change in the price
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Market demand curve for a product
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Horizontal sum of the demand curve of the individuals for the product
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