Economics 1021A/B Chapter Notes -Complementary Good, Substitute Good, Opportunity Cost

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24 Apr 2012
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Nicole Wallenburg
Mr. Parkin
Economics
12-04-23
Economics Textbook Notes
Markets and Prices
Producers offer items for sale only if the price is high enough to cover their opportunity
cost. And consumers respond to changing opportunity cost by seeking cheaper
alternatives to expensive items
Market
Any arrangement that enables buyers and sellers to get information and to do business
with each other
Competitive Market
A market that has many buyers and sellers, so no single buy or seller can influence the
price
Demand
Substitution Effect
When the price of a good rises, other things remaining the same, its relative price its
opportunity cost rises. As the opportunity cost of a good rises, the incentive to
economize on its use and switch to a substitute becomes stronger.
Income Effect
When a price rises, other things remaining the same, the price rises relative to income.
Faced with a higher price and an unchanging income, people cannot afford to buy all the
things they previously bought.
The Law of Demand
Other things remaining the same, the higher the price of a good, the smaller is the
quantity demanded; and the lower the price of a good, the greater is the quantity
demanded
Demand
The entire relationship between the quantity demanded and the price (Quantity demanded
at every price level)
Quantity Demanded
A point on a demand curve the quantity demanded at a particular point
A Change in Demand
1. The Price of Related Goods
a. If the price of a substitute good increases, demand will increase
b. If the price of a substitute good decreases, demand will decrease
c. If the price of a complementary good increases, demand will decrease
d. If the price of a complementary good decreases, demand will increase
2. Expected future prices
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