Exam Notes - Exam Notes Key Concepts A rational decision...

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Exam Notes Key Concepts A rational decision maker takes and action if and only if the marginal benefit of the actions exceeds the marginal cost The effect of a good’s price on the behaviors of buyers and sellers in a market is crucial for understanding how the economy allocates scarce resources. Perfectly competitive markets are the easiest to analyze because everyone participating in the market takes the price as given by market conditions Price of the good determines the quantity demanded of the good Normal Good: a good for which, other things equal, an increase in income leads to an increase in demand Inferior Good: if the demand of a good rises when income falls When a fall in the price of one good reduces the demand for another good, the two goods are called substitutes When a fall in the price of one good raises the demand for another good, the two goods are called complements
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