HSCI 306 Lecture Notes - Lecture 3: Inferior Good, Demand Curve, Normal Good

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The price is determined by the market, not the manufacturer. Why do they slope downwards: if the price of a good increases we buy less of it and vice versa, income effect and substitution effect happen at the same time. Substitution effect is a greater effect and that"s why the slope decreases. If a good that you buy suddenly becomes expensive, you will look to substitute that good for something of a different brand: ex. If your favourite gum increases in price, you"ll buy gum from another company. Therefore, if the price goes up, your demand for that product will fall. If you spend all your income on a set of goods and services, ad the price of one of the goods goes up, you can"t afford exactly that same set again because you don"t have enough money. The amount the price goes up = loss in your income.

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