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A substitute good is a good that can be used for the same purpose as another good by consumers. Learn about the types, characteristics and consequences of substitute goods, such as perfect and imperfect substitutes, cross-price elasticity and utility functions.
The law of demand states that there is an inverse relationship between price and quantity demanded of a good or service, conditional on other factors remaining constant. Learn the history, graphical illustration, exceptions, and applications of the law of demand in microeconomics and managerial economics.
The substitution effect is the change in consumption of a good due to a price change, holding utility constant. It is one component of the total effect of a price change, along with the income effect. Learn the graphical analysis, the elasticity of substitution, and the history of this concept.
Learn the definition, history, and economic interpretation of elasticity of substitution, a measure of the curvature of an isoquant and the substitutability between inputs or goods. See examples, formulas, and references for different applications and models.
An inferior good is a product whose demand decreases as income or price increases. Examples include cheap cars, public transit, payday lending, and inexpensive food. Learn how income and substitution effects explain the demand curve of inferior goods.
Learn how to measure and interpret the sensitivity of quantity demanded to price changes for different goods and services. Find out the factors that affect the elasticity, the special cases of perfectly elastic and inelastic demand, and the methods to estimate elasticity.
Learn the definition, formula and properties of the marginal rate of substitution (MRS), which is the rate at which a consumer can give up some amount of one good in exchange for another good while maintaining the same level of utility. Find out how the MRS relates to indifference curves, marginal utility, budget constraint and convexity of preferences.
Learn how supply and demand is an economic model of price determination in a market, with graphical representations and examples. Explore the factors that affect supply and demand curves, such as prices, costs, technology, expectations, and market structure.