Economics Essentials: Goods, Demand, Supply, and Market Equilibrium
Economics Essentials: Goods, Demand, and Supply
A normal good means the coefficient multiplying income is positive. If it was negative, then it would be an inferior good.
Complementary and Substitute Goods
Complementary goods: If the price of one good increases, demand for both complementary goods will fall. Look at the coefficient.
Substitute goods: If the coefficient multiplying the good is positive, this means the other good’s demand will increase.
Demand and Supply Functions
Deriving a demand function:
Read MoreUnderstanding Demand, Supply, and Elasticity in Economics
Demand, Supply, and Elasticity in Economics
Demand – relationship between the quantity of a good that consumers are willing to buy and the price of the good. Qd=Qd(P)
Substitutes – Two goods which satisfy the same need and can replace each other in consumption. For substitutes, an increase in the price of one leads to an increase in the quantity demanded of the other (e.g., Colgate and Blend-a-med toothpaste).
Complements – Two goods which are consumed together. For complements, an increase in the
Read MoreEconomics: Supply, Demand, and Market Dynamics
Chapter 1: Core Economic Principles
Economics: The study of how society manages its scarce resources.
Scarcity: The limited nature of society’s resources. Examples: Oil, Land, Human capital
Efficiency: The property of society getting the most it can from its scarce resources.
Equality: The property of distributing economic prosperity uniformly among the members of society.
Opportunity Cost: Whatever must be given up to obtain some item.
Rational People: People who systematically and purposefully do the
Read MoreDiminishing Marginal Utility: Definition & Examples
Introduction
The concept of diminishing marginal utility is a fundamental principle in economics that explains consumer behavior. It plays a crucial role in understanding how individuals make decisions about the consumption of goods and services. This law highlights the relationship between the quantity of a good consumed and the satisfaction derived from it.
Definition
The law of diminishing marginal utility states that as a person consumes additional units of a particular good, the satisfaction (
Read MoreMicroeconomics Key Concepts: Definitions, Costs, and Market Structures
Microeconomics: Key Concepts and Principles
Effective altruism: Doing the most good you can possibly do for society with limited resources (time and money). Opportunity cost: The cost of choosing one alternative over another, calculated as the value of the opportunity that is given up as a result of the choice. Absolute advantage: Fewer resources. Comparative advantage: Lower opportunity cost. Normal good: Increased demand when income increases. Inferior good: Decreased demand when income decreases.
Read MoreDemand & Supply: Factors Influencing Market Dynamics
Factors Affecting Demand
1. Income: Changes in consumer income influence the quantity demanded. However, the effect varies depending on whether a good is normal or inferior.
- Normal Goods: An increase in income leads to an increase in the quantity demanded. Conversely, a decrease in income leads to a decrease in the quantity demanded.
- Inferior Goods: An increase in income leads to a decrease in the quantity demanded. Conversely, a decrease in income leads to an increase in the quantity demanded.