Factors affecting price elasticity of demand.

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I. INTRODUCTION

"Economics is the study of how people allocate their limited resources to satisfy their unlimited wants" (MILLER, R.L., 2000, p.5). In other words, it is all about studying how people make choice (ESTRIN, S., LAIDER, D., 1995, p.1). In making choices, consumers show their preferences which maximises the level of satisfaction.

The indifference curve analysis is used to depict customer's preferences graphically. This paper is meant to distinguish inferior good from normal good by using indifference curve analysis as well as illustrating how price elasticity of demand is different between these two types of goods. There are several things that I would like you to pay special attention to. First, to simplify work, it is assumed that there are only two goods for the consumers to choose from, namely food and clothing, to create their own basket of goods and services (bundle). Second, I am only concerned with the "goods" but not the "bads". That is, in my analysis, I will treat all goods as desirable. Third, throughout the analysis, whenever indifference curve is in regard, I will measure food on the horizontal axis and clothing on the vertical axis. Lastly, not all the figures here