Vocabulary
Normal good
If we make more money, we will purchase more of these kinds of goods.
Inferior good
When our income decreases, we purchase more of these goods because it is more cost effective.
Elasticity
A measure of responsiveness that tells us how a dependent variable such as quantity responds to a change in an independent variable such as price.
Demanded elasticity
The extent to which a change in price causes a change in the quantity demanded.
Elastic
When a given change in price causes a relatively larger change in quantity demanded.
Inelastic
A given change in price causes a relatively smaller change in the quantity demanded.
Unit elastic
A given change in price causes a proportional change in quantity demanded.