At some point, there is substitute for everything
Other demand of elasticity
(1) The income elasticity of demand
a measure of how much the quantity demanded of a good responds to a change in consumers' income, computed as the percentage change in quantity divided by the percentage change in income
Income elasticity of demand: percentage change in quantity demanded/percentage change in income
If the outcome>0 the good is normal good; if the outcome<0, the good is inferior good
The size of elasticity shows different need for the staff. For example, the income elasticity of clothing and food may be low because they are the basic necessity of people, which means that even if we have low income, we still buy them because of their importance. In contrast, the income elasticity of diamond can be high because we can live life without diamond, in other words, diamond is not that necessary and important in our daily life.
(2)The cross-price elasticity of demand
a measure of how much the quantity of one good responds to a change in the price of another good.
Cross-price elasticity of demand= percentage change in quantity demanded of good 1/percentage change in the price of good 2
If the outcome>0, it means that a raise in the price of one good leads to the increase of demand of another good, so these two goods are substitutes.
If the outcome<0, the two goods are complement, meaning that a price rise in one good cause the decrease of demand of another good.
Supply
quantity supplied: the amount of good that sellers are willing and able to sell.
law of supply: the claim that, other things equal, the quantity supplied of a good rises when the price of a good rises
What are costs? Something that consumes resources
(1)It's tied with action
(2)Every one's cost is different, so you have to add "to whom"
Example: Why do poor people ride bus more than rich people?
Wrong answer: they are cheaper
Reason:L riding bus is cheap to everyone
Answer: The rich value something else, such as time.
Possible answer: Conspicuous consumption.
Example #2
Why does the application for graduate schools rise during financial crisis?
Answer: The opportunity cost of going to study has decreased.
Example 3
Why does the cost of producing a bike higher than that of producing a wood table?
Answer: The opportunity cost of the time and resources to produce a bike is higher than that to produce a wood table.
Skilled workers are only paid more than non-skilled workers insofar as skills are valued by someone else.
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