Supply & Demand

Substitution Effect

• If two items satisfy the same need/want you should buy the cheaper one.

• You cannot afford the same amount of a product if price increases and income stays the same.

• At some point you will lose satisfaction because you have too much.

Law of Diminishing Marginal Utility

• If two items satisfy the same need/want you should buy the cheaper one.

• You cannot afford the same amount of a product if price increases and income stays the same.

• At some point you will lose satisfaction because you have too much.

Real Income Effect

• If two items satisfy the same need/want you should buy the cheaper one.

• You cannot afford the same amount of a product if price increases and income stays the same.

• At some point you will lose satisfaction because you have too much.

Elastic Demand

• Prices do NOT affect demand (few substitutes)

• Prices greatly affect demand (lots of substitutes)

• Prices only greatly affect demand when income is high

Inelastic Demand

• Prices do NOT affect demand (few substitutes)

• Prices greatly affect demand (lots of substitutes)

• Prices only greatly affect demand when income is high

Population determinant of Demand

• Population goes up Demand goes up; curve shifts out to right

• Population goes up Demand goes down; curve shifts out to left

Changes in Demand (macro)

• If there is ONE line = change in Demand

• If there are TWO lines = change in Demand

Changes in Quantity Demanded (micro) : SELECT TWO

• If there are TWO lines = Change in Quantity Demanded

• If there is ONE line = Change in Quantity Demanded

• A change in a specific price and quantity

Printers and ink cartridges are typically purchased together.  Economists would call these

• Stubstitues
• Complements
• Elastic
• Inelastic

Consuming more of one good because of a change in price of another good is known as the 

• income effect
• substitution effect
• elasticity effect
• demand effect