Micro 6 Flashcards
What is YED?
measures the sensitivity of change in demand to a given change in real disposable income.
What is the formula for YED?
%change in demand divide %change in income
What is a normal good ?
when income increases, demand for these goods also increases.
What is an inferior good ?
when income increases, demand for these goods fall.
What is a superior good?
: are considered luxuries and will see a significant change in demand based on change in income.
What type of elasticity does a normal good have ?
will always have a positive income elasticity.
What type of elasticity does a inferior good have
will always have a negative elasticity (because demand and income are doing the opposite of one another).
What type of elasticity does a superior good have
will have an elasticity of more than 2.
What does XED measure ?
Measures the responsiveness of demand for GOOD X, to a change in the price of GOOD Y
What is the formula for XED ?
change in quantity demanded of GOOD divided % change in price of GOOD
What does cross elasticity mean ?
a change in price of GOOD X will lead to a more than proportional change in demand of GOOD Y
What does it mean if it is cross inelastic ?
a change in price of GOOD X will lead to a less than proportional change in demand of GOOD Y
.
If XED coefficient is greater than +1 or less than -1 then the product is cross elastic
If XED coefficient is between -1 and +1 then the product is cross inelastic
What type of XED does substitutes have ?
will have a positive XED
What type of XED does complements have ?
will have a negative XED
