1. Demand Concepts
a. calculate and interpret price, income, and cross-price elasticities of demand and describe factors that affect each measure;
What is the demand function?
$$Q_x^d = f(P_x, I, Py, ...)$$
- Reads as: The quantity of demanded good X depends on its price, consumers' income, and the price of good Y, etc...
In a chart, how is the price curve depicted?
As a negatively sloped demand curve.
What is a demand curve?
A demand curve is a negatively slope that shows the inverse relationship between price and the amount consumers are willing to buy.
What is the definition of a product substitute?
A product substitute is a good that performs a similar function.
How does a product substitute affect the demand curve?
All other factors being equal, because of product substitutes, as price increases the demand for it falls.