Problem : Which of the following are complementary goods, and which are substitute goods?
Right and left shoes?
Sweaters and sweatshirts?
Hot dogs and ketchup?
Nickels and dimes?
Ice cream and sorbet?
Chips and salsa?
Complementary goods: Right and left s
Income and Substitution Effects
Changes in price can affect buyers' purchasing decisions; this effect is called the income effect. Increases in price, while they don't affect the
amount of your make you feel poorer than you were before, and so you buy les
The Graphical Approach
Economists graphically represent the relationship between product price and quantity demanded with a demand curve. Typically, demand
curves are downwards sloping, because as price increases, buyers are less likely to be willing or a
SUPPLY
Problem : Tom's supply equation for selling handmade mugs is as follows:
Q = 5 + 1.5P
How many mugs will he sell if the price is $2 a mug? What if the price is $4 a mug?
To find out how many mugs Tom is willing to supply, we simply plug in the pric
Choice Based on Expected Value
In some cases, buyers must make a purchase decision without knowing exactly what they're getting for their money. Deciding whether or not
to buy a good without knowing exactly what the good is worth involves some degree of r
The Graphical Approach
Economists graphically represent the relationship between product price and quantity supplied with a supply curve. Typically, supply curves are
upwards sloping, because as price increases, sellers are more likely to be willing to se
Problem : Nathan and Joe are shopping for Nathan's demand function for video games is Q = 30 - 3P, and Joe's demand function is Q = 48 4P. What will their combined demand be if the price is $5? $11?
If we add Nathan and Joe's demand functions, we get:
At
In microeconomics, demand refers to the buying behavior of a household. What does this
mean? Basically, micro economists want to try to explain three things:
1. Why people buy what they buy
2. How much they're willing to pay
3. How much they want to buy
I
Utility and Indifference Curves
We know how to represent changes in demand as price or income changes on a graph, but how can we show preferences? What makes
buyers happy and how can we measure that happiness? Economists use the term utility when referrin
The Graphical Approach
Two Approaches to Market Equilibrium
By now, we are familiar with graphs of supply curves and demand curves. To find market equilibrium, we combine the two curves onto one
graph. The point of intersection of supply and demand marks
SUPPLY
Aggregate Demand - The combined demand of all buyers in a market.
Aggregate Supply - The combined supply of all sellers in a market.
Buyer - Someone who purchases goods and services from a seller for money.
Competition - In a market economy, compet