Chapter 4

Question 1

What is price elasticity of demand?

Answer 1

is % change in q demanded/ % change in price

Demand is inelastic if less than 1; elastic of greater than 1.

Question 2

What is income elasticity of demand?

Answer 2

measures responsiveness of demand to changes in income.

Income elastic if greater than 1; income inelastic if less than 1.

Goods whose income elasticity is positive are normal goods, negative inferior goods.