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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.