If the price of a good increases, then there will be two different effects – known as the income and substitution effect. If a good increases in price The good is relatively more expensive than alternative goods, and therefore people will switch to other goods which are now relatively cheaper. (substitution effect) – The increase in …
An indifference curve is a line showing all the combinations of two goods which give a consumer equal utility. In other words, the consumer would be indifferent to these different combinations. Example of choice of goods which give consumers the same utility Table plotted as indifference curve Diminishing marginal utility The indifference curve is convex …
– Positive economics: based on facts and testable theories e.g. inflation is 2% – Normative economics: based on opinion – Opportunity cost: is the sacrifice foregone of the next best alternative – Demand curve will shift to the right if real incomes rise, price of substitute rises, price of complement falls, changes in taste Giffen …
Definition The observation that some goods (e.g. water) which are more essential to human life can be cheaper than non-essential goods (e.g. diamonds) Paradox of value – Economics explainedWatch this video on YouTube Explanation The paradox of value examines why goods that are not essential to life can command a much higher price than goods …