ECN 104 Chapter Notes - Chapter 3: Equilibrium Point
Document Summary
Law of demand as price falls, the quantity demanded rises, and as prices rises the quantity demanded falls all other things being equal diminishing marginal utility: at any given time, each buyer of a product will get less satisfaction from every successive unit of the product consumed: because each successive product has less utility, consumers will buy additional units only if price is progressively reduced substitution effect: at a lower price, buyers have the incentive to substitute what is now a less expensive products for other products that are now relatively more expensive, the product whose price has fallen is now a better deal relative to the other products income effect: a change in the price of a product changes a consumers real income (purchasing power) and therefore the quantity they can buy ex: a decrease in price of a product increases the purchasing power and allows the buyer to afford more than they previously could (vice versa)
