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RISK AVERSE: A person who values a certain income more than an equal amount of income that involves risk or uncertainty. To illustrate, let's say that you're given two options--(A) a guaranteed $1,000 or (b) a 50-50 chance of getting either $500 or $1,500. If you chose option A, then you're risk averse. Both options give you the same "expected" values. In other words, if you select option B a few hundred times, then your average amount over those few hundred times is $1,000.

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Lesson 5: Market Demand | Unit 4: Determinants Page: 18 of 20

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  • Why relaxing the ceteris paribus assumption enables further analysis of demand and markets.
  • How the changes in the demand determinants cause rightward or leftward shifts in the demand curve.
  • The five basic demand determinants: income, preferences, prices of other goods, buyers' expectations, and number of buyers.
  • How income affects the demand for normal goods differently than inferior goods.
  • How a change in the price of a substitute goods affects demand differently than a change in the price of a complement good.
  • Most important of all, the difference between a change in demand, caused by a change in a demand determinant, and a change in quantity demanded, caused by a change in price.


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INCOME ELASTICITY OF DEMAND

The relative response of a change in demand to a change in income. More specifically the income elasticity of demand is the percentage change in demand due to a percentage change in buyers' income. This notion of elasticity captures the buyers' income demand determinant. Three other notable elasticities are the price elasticity of demand, the price elasticity of supply, and the cross elasticity of demand.

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