Economics, 3rd Edition

What Economists Know

Economists know that demand curves slope downwards from left to right.

t
 This suggests that when prices rise, the quantity demanded of a product (under 

normal circumstances) will fall and vice versa.

Economists know that supply curves slope upwards from left to right.

t
 This suggests that when prices rise, the quantity supplied by producers will also 

rise and vice versa.

TABLE 2.2

---

CHAPTER 2  THINKING LIKE AN ECONOMIST  27

SELF TEST 

Why might economic advisors to the government disagree about a question of policy such as 

reducing a budget deficit?

Economists know that the proportion of income spent on food falls as income rises.

t
 This is what is referred to as Engel’s law, after the German statistician, Ernst Engel. 

Budd points out that this law applies not only to studies of the differences in the 

proportion of  income spent on food by the rich and the poor, but also over time. 

When nations go through economic development and become richer, the propor-

tion of national income spent on food falls.

Economists know that there are gains from trade to be had when countries or individuals have