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Chapter 4

ECON 1B03 Chapter Notes - Chapter 4: Ceteris Paribus, Demand Curve, Inferior Good

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Hannah Holmes

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Richard Damra Monday, January 21, 2013
Econ 1B03 - Chapter 4 Supply and Demand
Shift Factors for Demand
Consumer Income
As income increases, the demand for a normal good will:
o Increase and demand curve shifts to the right
As income increases, the demand for an inferior good will:
o Decrease, demand curve shifts left

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Richard Damra Monday, January 21, 2013
Price of Related Goods
If 2 goods are substitutes: if the price of Good # 1 increase, the Qd of Good #1 decrease and the
demand for Good # 2 will increase (e.g Coke and Pepsi)
If the 2 goods are compliments: if the price of Good # 1 increases, the Qd of Good # 1 decreases
and the demand for Good # 2 will also go down (e.g Gas and automobile)
Increase in the price of a Substitute
Change in Qd = no shift
Change in Demand = curve shift
Changes in expectations and tastes will shift demand accordingly.
Quantity supplied, Qs: amount of good that sellers are willing and able to sell
When the price of a good increases, ceteris paribus, selling that good becomes more profitable
and firms will want to offer more for sale.
Price and Qs are positively related
As Price increases, Quantity supplied (Qs) increase.
The Law of Supply
Other things being equal (ceteris paribus), the quantity supplied of a good rises when the price
of the good rises.
Other Determinants of Supply
Input Prices: When the price of an input into production (like labour costs, raw materials,
energy etc) producing the good becomes less profitable and firms will offer fewer goods for sale
at any price if the cost of production increase, supply will decrease.
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