ECON 101 Lecture Notes - Lecture 7: Ceteris Paribus, Complementary Good, Normal Good

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24 Sep 2015
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ECON 101 Full Course Notes
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Econ 101 lecture 7 demand and supply. Remember, economics only functions when we take into account ceteris paribus, all else held constant. The law of demand states that price and quantity demanded are inversely proportional. (in economics, proportional has nothing to do with rates, simply the relationship between two things. Directly proportional means as one quantity increases, another increases. Inversely proportional means as one quantity increases, another decreases. ) This can be seen through movement along the demand curve. The law of demand is a product of two specific economics effects: substitution. The substitution effect states that when price increases, buyers seek alternatives. This is due to the fact that the relative price, basically the opportunity cost, of the good or service has increased. The substitution effect corroborates the demand curve. The income effect states that when there is an change in price relative to a household"s income, quantity demanded also changes inversely proportional.

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