Economics Demand and Supply

The demand curve for one good can be affected by a change in the demand for another good.

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Several factors can lead to a change in demand:

1. Income 2. Consumer Expectations 3. Population 4. Consumer Tastes and Advertising

is a Latin phrase economists use meaning "all other things held constant."

Ceteris Paribus

are two goods that are bought and used together. Example: skis and ski boots

Compliment

When reading a demand curve, assume all outside factors, such as income, are held

Constant

A ______________ graphical representation of a demand schedule.

Demand Curves

A table that lists the quantity of a good a person will buy at each different price.

Demand Schedule

An _____________ is a good that consumers demand less of when their income increases.

Inferior Goods

A table that lists the quantity of a good all consumers in a market will buy at each different price.

Market Demand Schedule

A ________________ is a good that consumers demand more of when their incomes increase.

Normal good

are goods used in place of one another. Example: skis and snowboards

Substitution

The ___________ effect happens when a person changes his or her consumption of goods and services as a result of a change in real income.

The Income Effect

The ____________ effect occurs when consumers react to an increase in a good's price by consuming less of that good and more of other goods.

The Substitution Effect

Law of Demand States

that consumers buy more of a good when its price decreases and less when its price increases

When the ceteris paribus assumption is dropped, movement no longer occurs along the demand curve. Rather,

the entire demand curve shifts

The law of demand is the result of two separate behavior patterns that overlap

the substitution effect and the income effect.

These two effects describe different ways that a consumer can change his or her spending patterns for other goods.

the substitution effect and the income effect.