Module 46 Mind map (Sidae Lee) by h30114이시대 https://padlet.com/23h30114/4esea7n8ythfggp7 en-us 2023-08-09 06:22:00 UTC 2023-08-11 06:30:39 UTC hello@padlet.com 23h30114 https://padlet.com/23h30114/4esea7n8ythfggp7/wish/2659504192
  • The price increases, consume less / The price decreases, consume more
  • normally slope down
    • -  demand curve slopes downward  to focus on opportunity costs.
      -  low price of goods makes it attractive to buy more.
      -  high price of goods makes it less attractive and the consumer buys fewer.

    • The substitution effect is defined as the change in the quantity demanded as a relatively cheaper good is substituted for a comparably more expensive good.

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  • When income is adjusted to reflect its true purchasing power, it called real income, in contrast to money income  or nominal income, which has not been adjusted
  • When the price of a good changes, the income effect is the change in the quantity required as a result of a change in the overall purchasing power of the consumer's income.
  • Two things about the distinction between these two effects
    1. majority of goods and services                                            - income effect is not important on individual consumption. → market demand curves slope downward due to the substitution effect.
    2. the income effect usually reinforces the substitution effect.                                               - reduction in income leads to a reduction in the quantity demanded and reinforces the substitution effect.

    • In an inferior good, the income and substitution effects work in opposite directions. A price increase increases the quantity demanded, while a substitution effect decreases the quantity demanded.   
    • Giffen goods are rare - The quantity sought will decline when prices rise because, in general, it is believed that the income effect for an inferior good is smaller than the substitution effect.




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  • The price elasticity of demand compares the percent change in quantity demanded to the percent change in price as we move along the demand curve.
  • calculate the percent change in the quantity demanded  → the corresponding percent change in the price as we move along the demand curve.
  • change in quantity demanded = (Change in quantity demanded / Initial quantity demanded) x 100 
  • change in price = (Change in price / Initial price) x 100
  • price elasticity of demand (% change in quantity demanded / %change in price)

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  • The midpoint method replaces the usual definition of the percent change in a variable, X, with a slightly different definition
  • change in X = (change in X / Average value of X) x 100
  • Average value of X = (Starting value of X + Final value of X) / 2
  • Price elasticity of demand = (%change in quantity demanded / %change in price)
  • Price elasticity of demand = { (Q2 - Q1 / (Q1 + Q2) / 2) / (P2 - P1 / (P1 + P2) / 2) } 

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