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Macro Exam 1 (Price Elasticity (Price Elasticity of Demand (Factors…
Macro Exam 1
Price Elasticity
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Income
More than 0: Normal goods (as income goes up, Q goes up)
Less than 0: Inferior (as income goes up, Q goes down)
Cross-Price
Positive: Substitute (P1 up, Q2 up)
Negative: Complements (P1 up, Q2 down)
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Supply and Demand
Supply
Law of Supply: as the price of a good or service increases, the quantity of goods or services that suppliers offer will increase, and vice versa.
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Supply does not generally change, but supply demanded moved along the supply curve
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Demand
The law of demand states that quantity purchased varies inversely with price. In other words, the higher the price, the lower the quantity demanded.
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