Additional Study Materials

Important points to remember while drawing a graph

Understanding the variables, dependent and independent variables
Identifying the axes, horizontal axis (x axis) and vertical axis (y axis) and also the origin, the
Horizontal & vertical intercept

Straight line/ Curve

Equation of a straight line: linear: y=mx+ c
Equation of a curve: Nonlinear: y=mx² +c
Quadratic, cubic and even exponential equation

Concepts of Slope & Curvature

Slope/ gradient: slope of tangent line to a curve, first order derivative
Δ𝑦/Δ𝑥= slope or 𝑑𝑦/𝑑𝑥
Positively sloped: dy/dx >0
Negatively sloped: dy/dx <0
Constant slope: dy/dx = 0

Curvature: rate of change in slope, second order derivative, slope is not same or constant
between every pair of points
d²y/dx²
Convex: d²y/dx² >0
Concave : d²y/dx² <0

Concepts of different kinds of Good

Normal & Inferior
A "normal good" is a good where, when an individual's income rises, they buy more of
that good. An "inferior good" is a good where, when the individual's income rises they buy
less of that good.
For example, something as simple as fast food may be considered an inferior good in the
U.S., but it may be deemed a normal good for people in developing nations. A normal good is
one whose demand increases when people's incomes start to increase, giving it a positive
income elasticity of demand.
Giffen Good
A Giffen good, refers to a good that people consume more of as the price rises. Therefore, a
Giffen good shows an upward-sloping demand curve and violates the fundamental law of
demand. The term Giffen good was named after Scottish economist Sir Robert Giffen. The
term Giffen good was developed by the economist after he noticed, in the poor Victorian era,
that the rise in the price of a basic food increased the demand for that particular food.
It is important to note that all Giffen goods are inferior goods, but not all inferior goods are
Giffen goods.
Conditions for a Giffen Good
1. The good must be inferior
The good must be an inferior good as its lower comparable costs drive an increased demand
to meet consumption needs. In a budget shortage, the consumer will consume more of the
inferior goods.
2. The good must form a large percentage of total consumption
The total amount spent on the good must be large relative to the consumer’s budget. Only in
such a scenario will an increase in its price create a significant income effect.
3. There must be a lack of close substitute goods
The good must either have a lack of close substitutes or the substitute good must have a
higher cost than the good. Even if there is an increase in the price of the good, the current
good should still be an attractive option for the consumer. In other words, the substitution
effect created by the increase in the price of that good must be smaller than the income effect
created by the increased cost requirement.