ECON101 Chapter Notes - Chapter 3: Demand Curve, Inferior Good, Normal Good
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23 Jan 2019
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Law of demand: when the price of a good decreases, the demand increases. When the price of a good increases, demand decreases. Income effect: at higher prices, buyers feel more poor, which causes demand to decrease. Substitution effect: at higher prices, buyers start substituting other goods for the higher priced good. A change in a determinant of demand results in a change in demand. A change in a good"s price results in a change in quantity demanded. Demand shifters/determinants of demand: prices of related goods (substitutes and complements) income, number of buyers tastes, expectations. Normal good: if income increases, the demand increases; if income decreases, demand decreases. The law of supply: the higher the price of a good, the higher supply will be; the lower the price of a good, the lower supply will be. (in other words, when price increases, supply increases. When price decreases, supply decreases because suppliers want to make a profit).
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