Intermediate Microtheory. Lecture 7

Front 1

Ordinary Good; Def →

Back 1

A good for which quanity demanded decreases when its price increases

Front 2

Define price elasticity of demand for a good as the percentage change in quantity demanded for that good resulting from a 1 percent increase in price. In math terms, it is:

Back 2

ε,p,q = N0=%∆Q
%∆P = (see notes, back of lecture 7)

For an ordinary good, n1<0

X,Y are both normal goods
Py is the price of Y
I is the income

Front 3

Giffen Goods; Def →

Back 3

A good for which quanltity demanded increases when its price increases. That is, goods with nd>0

- Would suggest an upward-sloping demand curve
- giffen goods don't exist in the real world

Consider a price change;
- X, Y are both normal goods
Py is the price of Y
I is the income

Front 4

Substitution effect; Def →

Back 4

The change in demand for a good resulting from the fact that the price ratio has changed

Front 5

Income effect; Def →

Back 5

The change in demand for a good resulting from the fact that purchasing power has changed

Front 6

Impact on demad for good x

Back 6

See C; notes Lecture 7, bottom of page 3

a, b, c, d

Front 7

Impact in demand for good Y

Back 7

a, b, c

See notes, lecture 7, back of page 4