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LEARNING OBJECTIVES
- Explain the concept of income elasticity of demand and its calculation.
- Classify goods as normal or inferior depending on their income elasticity of demand.
- Explain the concept of cross price elasticity of demand and its calculation.
- Classify goods as substitutes or complements depending on their cross price elasticity of demand.
Although the response of quantity demanded to changes in price is the most widely used measure of elasticity, economists are interested in the response to changes in the demand shifters as well. Two of the most important measures show how demand responds to changes in income and to changes in the prices of related goods and services.
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