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Law of demand - Change in Demand vs Change in Quantity...

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Law of demand- “all else being equal”, consumers will buy more of a good during a good period the lower the relative price. Demand-quantity of a specific good people are willing and able to buy during a period Market price- price charged for goods whether or not you buy them Demand price- reflect the relative value on an individual Substitution effect- given price of 2 relative goods, you replace more expensive good with cheaper substitute When price of a good becomes relatively more expensive, consumers will substitute alternate good. Income effect- as prices of a good rise other things being held equal-like income consumers will be able to buy more goods Market Demand-horizontal…summation of all individual demand curves of all potential buyers Income/Distribution Normal goods: Income increases demand increases-steak, caviar, lobster Inferior goods: Income decreases demand decreases-ramen, easy mac
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Unformatted text preview: Change in Demand vs. Change in Quantity Demand Change in Demand Price D Quantity Change in Quantity demand Price D Quantity Supply-All else being equal higher prices induce greater production and higher output Change in supply caused by- Production technology Resource cost Price of related goods Substitutes in production Joint production Producer expectations # of sellers Taxes, subsidies, regulation Elasticity- y 1-y y 1 +y /2 x 1-x x 1 +x /2 Law of equal advantage- every resource will be used in such a fashion that its productivity at the margin is identical with the use of that resource at every other use. Marginal utility of good x = price of good x Marginal utility of good y = price of good y Marginal utility of any good = marginal utility of another good Price of good = Price of another good...
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