1. Chapter 2: Demand and Supply 2.1 Demand 2.2 Supply 2.3 Equilibrium 2.4 Elasticity

2. 2 2.1 Demand & Supply in Perfect Competition  Assume a large number of buyers and sellers of a good with full information  No one buyer or seller has any market power; individuals are “price-takers”  A supply and demand curve exists for every good in every location at one time  Demand and Supply are simplest in a PC (perfect competition) market

3. 3 Demand: Definition  A schedule showing amounts of a product that consumers are willing and able to purchase at each specific price during some specified time period, everything else held constant (ceteris paribus) everything else held constant (ceteris paribus)

4. 4 Demand: Origins Demand for a good or service comes from two areas: Demand for a good or service comes from two areas: 1) Derived Demand –desired to make something else (ie: iron is desired to make cars) 2) Direct Demand –desired to be used/consumed itself (ie: Pepsi Vanilla is desired to be drank)

5. 5 The Law of Demand There is an inverse relationship between the quantity of anything that people will want to purchase and the price they must pay to obtain it: There is an inverse relationship between the quantity of anything that people will want to purchase and the price they must pay to obtain it: ceteris paribus (all else held equal) ceteris paribus (all else held equal) This causes demand curves to be downward sloping This causes demand curves to be downward sloping When prices increase, people buy less When prices increase, people buy less When prices decrease, people buy more When prices decrease, people buy more

6. 6 The Individual’s Demand Schedule Number of Songs per Year Price of Songs ($) 1 2 3 4 5 10 20 3040500 A B C D E Change in Price = Movement along the Demand

7. 7 Math Note: We always graph P on vertical axis and Q on horizontal axis, but we write demand as Q as a function of P… If P is written as function of Q, it is called the inverse demand: Normal Form: Q d =100-2P Inverse form: P =50 - Q d /2  Markets are defined by: 1)Commodity 2)Geography 3)Time.

8. 8 Change A: Changes in Quantity Demanded A change in a good’s price Causes a change in quantity demanded (the same thing as a movement along the same demand curve)

9. 9 A Change in Quantity Demanded Quantity of Songs Demanded Price of Songs ($) 1 2 3 4 5 20 30 40506008070 D1D1 D3D3 Originally, song downloads cost $2 Due to a tax, song downloads increase to $3

10. 10 Change B: Shifts in Demand A change in non-price determinants of demand (income, tastes, etc) Causes a shift in demand* *The whole demand schedule

11. 11 A Shift in the Demand Curve Quantity of Songs Demanded Price of Songs ($) 1 2 3 4 5 20 30 40506008070 D1D1 D3D3 Decrease in Demand Suppose universities outlaw the use of MP3 Players D2D2 Increase in Demand Suppose the federal government gives every student an Electrohome MP3 player

12. 12 Non-Price determinants of Demand 1) Income, wealth 2) Tastes and preferences 3) The price of related goods ComplementsSubstitutes 4) Expectations Future prices Income Product availability 5) Population (market size) What movement would these factors cause?

13. 13 Shift vrs. Movement Price of Cigarettes, per pack Number of Cigarettes smoked per day 10 20 $2 $4 A tax raises the price of cigarettes, resulting in a movement along the demand curve A policy to discourage smoking (no smoking in public buildings) shifts the demand curve left Price of Cigarettes, per pack Number of Cigarettes smoked per day 10 20 $2 D D’ D

14. 14 Normal vrs. Inferior Goods For normal goods, Demand decreases With income Price of Chicken Chicken eaten in a month 10 20 $2 D D’ Price of Kraft Dinner Kraft Dinner eaten in a month 10 20 $2 D For inferior goods, Demand increases When income decrease D’ 30

15. 15 2.2 Supply  The amount supplied depends on PROFITS, which depend on COSTS  Costs depend on  the kinds of inputs (factors of production) used  the amount of each input used  prices of inputs used  technology

16. 16 Supply: Definition A schedule that shows how much of a product a firm will supply at alternative prices for a given time period, ceteris paribus. A schedule that shows how much of a product a firm will supply at alternative prices for a given time period, ceteris paribus.

17. 17 The Law of Supply The price of a product or service and the quantity supplied are directly related, ceteris paribusThe price of a product or service and the quantity supplied are directly related, ceteris paribus This creates an upward sloping supply curveThis creates an upward sloping supply curve The higher the price of a good, the more sellers will make availableThe higher the price of a good, the more sellers will make available The lower the price of a good, the fewer sellers will make availableThe lower the price of a good, the fewer sellers will make available

18. 18 The Individual Producer’s Supply Schedule Qnty of Songs Supplied Price / (thousands / Song year) F $5 550 G 4 400 H 3 350 I 2 250 J 1 200 Quantity of Songs Supplied (thousands of constant-quality units per year) Price of Song ($) 1 2 3 4 5 1002003004005000 J I H G F 600 Change in Price Movement along The Supply

19. 19 Change A: Change in Quantity Supplied A change in a good’s price Causes A change in quantity supplied. (This is also called a movement along the supply curve.)

20. 20 Change B: Shifts in Supply A change in non-price determinants of supply Causes A shift in supply

21. 21 S1S1 S2S2 a c A Shift in the Supply Curve Quantity of Songs Supplied (millions of constant-quality units per year) Price of Songs ($) 1 2 3 4 5 20 40 60801000140120 When supply decreases the quantity supplied will be less at each price: ie: Singers form a union and successfully negotiate higher wages b d S2S2 When supply increases the quantity supplied will be greater at each price: ie: producer finds that she can use some cheaper singers from Newfoundland b d

22. 22 1) Cost of inputs 2) Technology and Productivity 3) Taxes and Subsidies 4) Price Expectations (in the input market) 5) Number of firms in the industry Non-Price Determinants of Supply How will these shift supply?

23. 23 2.3 Market Equilibrium  In the Market, buyers and sellers interact, resulting in a  Single Equilibrium of  One Equilibrium Price  One Equilibrium Quantity

24. 24 Putting Demand and Supply Together: Finding Market Equilibrium (1)(2)(3)(4)(5) Difference Price perQuantity SuppliedQuantity Demanded(2) - (3) Constant-Quality(Songs(Songs(Songs Songper year)per year)per year)Condition $5100 million20 million80 million 480 million40 million40 million 360 million60 million 0 240 million80 million-40 million 120 million100 million-80 million Excess quantity supplied (surplus) Excess quantity supplied (surplus) Excess quantity demanded (shortage) Excess quantity demanded (shortage)

25. 25 S D Market Equilibrium: Definition Quantity of Songs (millions of constant-quality units per year) Price pef Song ($) 1 2 3 4 5 204060801000 Excess quantity supplied at price $5 Excess quantity demanded at price $1 AB Market clearing, or equilibrium, price E Q D = Q S The condition in a market when quantity supplied equals quantity demanded at a particular price; a point from where there tends to be no movement

26. 26 The Law of Supply & Demand The price of any good will adjust until the price is such that the quantity demanded is equal to the quantity supplied The price of any good will adjust until the price is such that the quantity demanded is equal to the quantity supplied A high price will result in excess supply, pushing price down, and a low price will result in excess demand, pushing price up A high price will result in excess supply, pushing price down, and a low price will result in excess demand, pushing price up the market clears resulting in a single market clearing or equilibrium price. the market clears resulting in a single market clearing or equilibrium price.

27. 27 Q d = 500 – 4p Q S = -100 + 2p p = price of cranberries (dollars per barrel) Q = demand or supply in millions of barrels per year

28. 28 a. The equilibrium price of cranberries is calculated by equating demand to supply: b.plug equilibrium price into either demand or supply to get equilibrium quantity:

29. 29 Price Quantity Market Demand: P = 125 - Q d /4 Market Supply: P = 50 + Q S /2 Q* = 100 P*=100 125 Example: The Market For Cranberries 50

30. 30 Comparative Statics: Shifts in Demand &/or Supply 1.) Decide whether Demand &/or Supply is affected. 2.) Decide in which direction the affected  Demand &/or Supply will move. 3.) Use a Demand and Supply diagram to determine the new equilibrium. 4.) Calculate the new equilibrium (if possible) How do you analyze a change in an exogenous variable?

31. 31 Comparative Statics: Gas Prices Summer 2009: Gas prices at equilibrium at $1.07 per liter Summer 2009: Gas prices at equilibrium at $1.07 per liter Winter arrives and certain drivers limit or end their driving for the season (shift in demand) Winter arrives and certain drivers limit or end their driving for the season (shift in demand) –The new market equilibrium is $0.87 per liter Cold Weather causes a decrease in gas prices Cold Weather causes a decrease in gas prices

32. 32 S D1D1 P1P1 Q1Q1 E1E1 Ford Escape Market Consider the market for Ford Escapes. Consider the market for Ford Escapes. 1.For each event identify whether demand or supply is affected. 2.Determine the direction of change. 3.Draw a diagram to illustrate how equilibrium is changed.

33. 33 Steelworkers Strike Raises Steel Prices Steelworkers Strike Raises Steel Prices D S1S1 Q1Q1 P1P1 E1E1 Ford Escape Market S2S2 Q2Q2 P2P2 E2E2

34. 34 New Automated Machinery Introduced S1S1 D P1P1 Q1Q1 E1E1 Ford Escape Market S2S2 P 2 Q2Q2 E2E2

35. 35 Price of Station Wagons Rises S D1D1 P 2 Q2Q2 E2E2 Ford Escape Market D2D2 P1P1 Q1Q1 E1E1

36. 36 D1D1 Stock Market Crash Lowers Wealth S P1P1 Q1Q1 E1E1 Ford Escape Market D2D2 P2P2 Q2Q2 E2E2

37. 37 Simultaneous Shifts –2 events 1.  supply 1.  supply 2.  demand 2.  demand only  supply  P,  Q. only  supply  P,  Q. only  demand  P,  Q. only  demand  P,  Q.  Q is guaranteed Example of a double shift.

38. 38 D1D1 Increased Price Example S1S1 P1P1 Q1Q1 E1E1 D2D2 S2S2 P 2 Q2Q2 E2E2

39. 39 D1D1 Decreased Price Example S1S1 P1P1 Q1Q1 E1E1 D2D2 S2S2 P 2 Q2Q2 E2E2

40. 40 Simultaneous Shifts Second possibility: –2 events 1.  supply 1.  supply 2.  demand 2.  demand only  supply  P,  Q. only  supply  P,  Q. only  demand  P,  Q only  demand  P,  Q   P is guaranteed Example of a double shift.

41. 41 Increased Quantity Example S1S1 D1D1 P1P1 E1E1 Q1Q1 S2S2 D2D2 P2P2 E2E2 Q2Q2

42. 42 D1D1 Decreased Quantity Example S1S1 Q 1 P1P1 E1E1 D2D2 S2S2 Q2Q2 P2P2 E2E2

43. 43 p = price of cranberries (dollars per barrel) Q = demand or supply in millions of barrels per year Assume that a plague reduced cranberry supply by 100 and fear of inflection likewise reduced cranberry demand by 100 so that:

44. 44 a. The new equilibrium price of cranberries is calculated by equating demand to supply: b.plug equilibrium price into either demand or supply to get equilibrium quantity:

45. 45 Price Quantity Old Market Demand: P = 125 - Q d /4 Old Market Supply: P = 50 + Q S /2 Q OLD P OLD =P New 125 Example: The Market For Cranberries 50 New Market Supply: P = 100 + Q S /2 New Market Demand: P = 100 - Q d /4 Q New

46. 46 2.4 Elasticity: Percentage Change Which is more common? Which is more common? –GDP increases by 1.4% OR GDP increases by $2.1 Billion –Inflation is 3.2% OR “Prices have gone up between 5 cents and $350,000 Percentage changes are easier to grasp than the amount of change Percentage changes are easier to grasp than the amount of change –Economists often use elasticities to examine percentage change or responsiveness

47. 47 Price Elasticity of Demand Price Elasticity of Demand ( Є Q, p ) Price Elasticity of Demand ( Є Q, p ) –The responsiveness of quantity demanded of a commodity to changes in its price –Related to the slope, but concerned with percentage changes

48. 48 One Impact of a Change in Supply S1S1 Quantity (pizzas per hour) Price (dollars per pizza) 10.00 20.00 30.00 40.00 DaDa 0 255 1015 20 13 5.00 S0S0 Large price change and small quantity change An increase in supply brings... … and a small increase in quantity … a large fall in price...

49. 49 Another Impact of a Change in Supply… Quantity (pizzas per hour) Price (dollars per pizza) 10.00 20.00 30.00 40.00 DbDb 0 255 1015 2017 S1S1 15.00 S0S0 Small price change and large quantity change An increase in supply brings... … a small fall in price... … and a large increase in quantity

50. 50 Solution: Price Elasticity of Demand Percentage change in price Percentage change in quantity demanded  Є Q,P The ratio of the two percentages is a number without units. Price Elasticity of Demand

51. 51 Price Elasticity Example Example –Price of oil increases 10% –Quantity demanded decreases 1% When calculating the price elasticity of demand, we often ignore the minus sign for % change in Q.

52. 52 TYPES OF ELASTICITY -Hypothetical Demand Elasticities

53. 53 Price Elasticity Ranges: Extreme Price Elasticities Quantity Demanded per Year (millions of units) Price 0 D 8 Perfect inelasticity, zero elasticity, no matter how much Price changes, Quantity stays the same; insulin P0P0 P1P1 Quantity Demanded per Year (millions of units) Price 0 Perfect elasticity, infinite elasticity, the slightest increase in price will lead to zero sales. 30 D P1P1 P 1 is the demand curve

54. 54 Price Elasticity Ranges Summary from Table Unit Elastic Inelastic Demand Elastic Demand

55. 55 Elasticity of Demand Calculating elasticity Calculating elasticity or Sum of prices/2 Change in P Sum of quantities/2 Change in Q  Є Q,P Always use the mid-point formula Є Q,P  Change in Q ( Q 1  Q 2 )/2 Change in P ( P 1  P 2 )/2 Є Q,P   Q Avg. Q  P P

56. 56 Calculating the Elasticity of Demand 9 10 11 19.50 20.50 D New point Quantity (pizzas/hour) Price (dollars/pizza) 20.00 Original point Elasticity = = 4 /Q ave /P ave 2/10 1/20 = ΔP=1 ΔQ=2 Q ave =1/2(11+9)=10 P ave =1/2(20.50+19.50)=20

57. 57 Elasticity of Demand (mid-point) Є Q,P =  P = $1.00 P 1 + P 2 ( $20.50 + $19.50) 2  P =5% = $20  Q = 2 Q 1 + Q 2 ( 9 + 11) 2  Q =20% = 10 Always use the mid-point formula for calculating elasticity 20% 5% = 4 = Є Q,P = X 100

58. 58 Elasticity: Example You are the consulting economist to the Guelph transportation commission, You are the consulting economist to the Guelph transportation commission, The current fare is $.95 The current fare is $.95 There are 17,500 riders per day There are 17,500 riders per day For each $.10 increase in the fare, rider ship decreases by 10,000 riders per day. For each $.10 increase in the fare, rider ship decreases by 10,000 riders per day. What is the price elasticity of demand at the current fare? What is the price elasticity of demand at the current fare? Should fares be raised or lowered? Should fares be raised or lowered? What fare will maximize revenue?...... What fare will maximize revenue?......

59. 59 Elasticity: Example Should fares be raised or lowered? Should fares be raised or lowered? What fare will maximize revenue?...... What fare will maximize revenue?......

60. 60 Total Revenue and Elasticity Total Revenue = Price Per Good X # of Goods Sold TR = P X Q Assumption : Costs are constant

61. 61 55110 55110.55 1.10 3.00 (dollars) Maximum total revenue When demand is inelastic, price cut decreases total revenue Unit elastic Elastic demand Quantity Inelastic demand 0 When demand is elastic, price cut increases total revenue Total Revenue Price 0 55110 Elasticity and Total Revenue Quantity.80

62. 62 Relationship Between Price Elasticity of Demand and Total Revenues Inelastic( < 1) TR  TR  Inelastic(Є Q,P < 1) TR  TR  Unit-elastic( = 1)No change  No change Elastic ( > 1) TR  TR  Unit-elastic(Є Q,P = 1)No change  No change Elastic (Є Q,P > 1) TR  TR  Price ElasticityEffect of Price Change of Demandon Total Revenues (TR) Price Decrease Increase Note: It is possible to classify elasticity by observing the change in revenue from a price change

63. 63Exercise 2 drivers - Tom & Jerry each drive to to a gas station. 2 drivers - Tom & Jerry each drive to to a gas station. Before looking at the price, each places an order. Before looking at the price, each places an order. Tom says, “I’d like 10 litres of gas”. Tom says, “I’d like 10 litres of gas”. Jerry says, “I’d like $10 of gas”. Jerry says, “I’d like $10 of gas”. What is each driver’s price elasticity of demand? What is each driver’s price elasticity of demand?

64. 64 Determinants of Price Elasticity of Demand Existence of substitutes Existence of substitutes –Goods are more price elastic if substitutes exist Share of budget Share of budget –Goods are more price elastic when a consumer’s expenditure on the good is large (in dollar terms or relatively) Necessity Necessity –Goods are less price elastic when seen as a necessity

65. 65 Market and Brand Elasticities Market and Brand Elasticities are not equal Market and Brand Elasticities are not equal –Although a water addict is very price inelastic to the price of bottled water in general, he/she would quickly switch to another brand if only 1 brand of water increased in price –GENERALLY, Brand price elasticity of demand is higher than market price elasticity of demand

66. 66 Q d = a – bp a,b are positive constants p is price  -b is the slope  a/b is the choke price (price at which nothing is sold)

67. 67  the elasticity is  Q,P = (  Q/  p)(p/Q) = -b(P/Q) Since the slope of the graph is –b. Therefore…elasticity falls from 0 to -  along the linear demand curve, but slope is constant.  if Q d = 400 – 10p, and p = 30,  Q,P = (-10)(30)/(100)  Q,P = -3 "elastic"

68. 68 D Quantity per Period (billions of minutes) Price per Minute ($) 0.10.20.30.40.50.60.70.80.90 1.00 1.10 1234567891011 Elastic ( Є Q,P > 1) Inelastic ( Є Q,P < 1) Unit-elastic ( Є Q,P = 1) Changes in Elasticity Along a Linear Demand

69. 69 The Relationship Between Price Elasticity of Demand and Total Revenues for Cellular Phone Service $1.10 0 1.00 1.90 2.80 3.70 4.60 5.50 6.40 7.30 8.20 9.1010 Quantity Total Elasticity Price Demanded Revenue Є Q,P 21.000 6.333 3.400 2.143 1.144 1.000.692.467.294.158 Elastic Inelastic Unit-elastic01.01.82.42.83.03.02.82.41.81.0

70. 70 Q d = Ap  or ln(Q d )=ln(A)+  Ln(p)  = elasticity of demand (must be negative) p = price A = constant  Elasticity is constant, but the slope of demand falls from 0 to - .

71. 71 Quantity Price 0 Q P Observed price and quantity Constant elasticity demand curve Linear demand curve Example: A Constant Elasticity versus a Linear Demand Curve

72. 72 Elasticity of Supply Calculating elasticity Calculating elasticity or Sum of prices/2 Change in P Sum of quantities/2 Change in Q  Є Qs,P Always use the mid-point formula Є Qs,P  Change in Q ( Q 1  Q 2 )/2 Change in P ( P 1  P 2 )/2 Є Qs,P   Q Avg. Q  P P

73. 73 One example of a Change in Demand Quantity (pizzas per hour) Price (dollars per pizza) 10.00 40.00 D0D0 0 255 1015 20 SaSa Large price change and small quantity change … a large price rise... 20.00 D1D1 30.00 13 An increase in demand brings... … and a small quantity increase

74. 74 Another example of a Change in Demand Quantity (pizzas per hour) Price (dollars per pizza) 10.00 30.00 40.00 D0D0 0 255 1015 20 SbSb Small price change and large quantity change … a small price rise... 20.00 D1D1 An increase in demand brings... 21.00 … and a large quantity increase

75. 75 Elasticity of Supply Elasticity of supply ranges Elasticity of supply ranges  (from) Perfectly Elastic Supply  Quantity supplied falls to 0 when there is any decrease in price  (to) Perfectly Inelastic Supply  Quantity supplied is constant no matter what happens to price

76. 76 Supply Elasticity Ranges Price Quantity S Elasticity of supply = 0 0 Quantity supplied is the same for any price! Price Quantity S Elasticity of supply = 0 Suppliers will offer ANY quantity at this price

77. 77 Elasticity of Supply: Depends On: 1.Resource substitution possibilities, - The more unique the resource, the more inelastic the supply. 2.Time frame for the supply decision, Momentary supply Long-run supply Short-run supply - Typically, the longer producers have to adjust to a price change, the more elastic is supply.

78. 78 Long-Run Elasticity of Demand -For most goods, elasticity of demand is greater in the long run (curves are “flatter”)  People are more able to adjust to changes over time (slowly switch consumption) -For essential durable goods (ie: Cars), long-run demand elasticity is less (curves are “steeper”)  People can change their purchases or suppliers now, but eventually they have to buy new goods as old ones break

79. 79 Long-Run Elasticity of Supply -For most goods, elasticity of supply is greater in the long run (curves are “flatter”)  Firms are more able to adjust to changes over time (slowly switch production) -For reusable goods (ie: Aluminum), long-run supply elasticity is less (curves are “steeper”)  People resell their supplies when prices go up, but eventually their supplies run out

80. 80 S2 Quantity Supplied per Period Price per Unit S1 QeQe PePe P1P1 As time passes, the supply curve rotates to S2 and then to S3 and quantity supplied rises first to Q1 and then to Q2 Supply Elasticity and the Long Run (most non-durable, non-essential goods) S3 Q2 Q1

81. 81 When is the Long Run?  The long run is how long a consumer or firm takes to fully adjust to a price change  Time required to change ANY variable  ie) Give up Pepsi Vanilla, Build more cost efficient Pepsi factory, secure a US Pepsi Vanilla supplier  The short run is anything shorter than the long run  At least one variable cannot be changed

82. 82 Cross Price Elasticity of Demand Demand is affected by the price of substitutes and compliments Demand is affected by the price of substitutes and compliments –An increase in the price of a substitute increases demand –An increase in the price of a complement decrease demand This effect can be measured using cross price elasticity This effect can be measured using cross price elasticity If the cross price elasticity is zero, the good is neither a complement nor a substitute If the cross price elasticity is zero, the good is neither a complement nor a substitute

83. 83 Change in Price of Y ---------------------------- (P y1 + P y2 )/2 / Cross Price Elasticity of Demand Percentage change in price of Y Percentage change in quantity demanded of X  Q i,P j Є Є Qi,Pj = Change in X --------------- (X 1 + X 2 )/2 Substitutes – Positive Cross Price Elasticity Compliments – Negative Cross Price Elasticity

84. 84 Cross Price Elasticity of Demand Example “Recent cat attacks have prompted cat owners to buy guns for self-defense” Originally, 2 Econ students owned a cat. After the price of guns went from $100 to $200, only 1 Econ student owned a cat. Originally, 2 Econ students owned a cat. After the price of guns went from $100 to $200, only 1 Econ student owned a cat. Calculate the cross-price elasticity of demand Calculate the cross-price elasticity of demand

85. 85 Cross-Price Elasticity Є Q,P =  P = $100 P 1 + P 2 ( $100 + $200) 2  P J = 66% = $150  Q = -1 Q 1 + Q 2 ( 2 + 1) 2  Q i =- 66% = 1.5 Are cats and guns substitutes or compliments? -66% 66% = = Є Qi,Pj = X 100

86. 86 Income Elasticity of Demand Income Elasticity of demand refers to a HORIZONTAL SHIFT in the demand curve resulting from an income change Income Elasticity of demand refers to a HORIZONTAL SHIFT in the demand curve resulting from an income change Price elasticity of demand refers to a MOVEMENT ALONG THE DEMAND CURVE in response to a price change Price elasticity of demand refers to a MOVEMENT ALONG THE DEMAND CURVE in response to a price change

87. 87 Change in M ---------------------------- (M 1 + M 2 )/2 / Income Elasticity of Demand Percentage change in income Percentage change in quantity demanded  Q,I Є Є Q,I = Change in Q --------------- (Q 1 + Q 2 )/2 Normal Good – Positive Shift/Elasticity Inferior Good – Negative Shift/Elasticity

88. 88 Income Elasticity of Demand Example In New Zealand, the average family will own 4 Toyotas in their lifetime. In New Zealand, the average family will own 4 Toyotas in their lifetime. If average Kiwi family income rose from $140K to $160K a year, the average Kiwi family would own 2 Toyotas over their lifetime If average Kiwi family income rose from $140K to $160K a year, the average Kiwi family would own 2 Toyotas over their lifetime Calculate Income Elasticity of Demand for Toyotas in New Zealand. Calculate Income Elasticity of Demand for Toyotas in New Zealand. Are Toyotas normal or inferior goods in New Zealand? Are Toyotas normal or inferior goods in New Zealand?

89. 89 Income Elasticity of Demand Є Q,I =  I = $20K I 1 + I 2 ( $140K + $160K) 2  I = 13.3% = $150K  Q = -2 Q 1 + Q 2 ( 4 + 2) 2  Q =-66% = 3 In New Zealand, are Toyotas normal or inferior goods? Guess which brand is the luxury car. -66% 13.3% = -5 = Є Qi,Pj = X 100

90. 90 Chapter 2 Key Ideas  Supply and Demand  Supply and Demand Movements  Equilibrium  Elasticity of Demand  Total Revenue Maximizing  Elasticity of Supply  Cross Price Elasticity of Demand  Income Elasticity