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Law of Demand
Income Effect
as price increases, consumers are less able to purchase the goods or services with their income
Substitution Effect
as price increases, consumers will shift to relatively cheaper substitutes, thus lowering the quantity demanded for the good
Diminishing Marginal Utility
As amount consumed increases, the marginal utility from each additional unit declines as consumption increases
PED Formula
PED=(%Δqd)/(%Δp)
Five Sector Model
C = Consumption
I = Investments
G = Gov Spending
X = Exports
M = Imports
YED (Income Elasticity of Demand)
Definition
A measure of how much the quantity demanded of a good will charge in response to a change in consumers income
Primary Sector
All primary commodities e.g. Agriculture, Forestry, and Mining industry
Secondary Sector
Industries producing goods manufactured from the primary sector
Tertiary Sector
All economic goods that are not tangible and yet improve people’s quality of life, e.g. entertainment, travel, and insurance
YED (Income Elasticity of Demand) Formula’s
YED=(%Δqd)/(%Δy)
+ YED => Normal good, as y increases/decreases, Qd increases/decreases
- YED => Inferior good, as y increases/decreases, Qd decreases/increases
Note
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