ECON 1P91 Chapter Notes - Chapter 1: Inverse Relation

Any point along the market demand curve shows

1. the quantity of the good that firms would be willing and able to supply at a specific price

2. the relationship between the price of the good and total quantity demanded at a series of prices 

3. the opportunity cost of supplying a given quantity of goods to the market

4. the quantity of the good that consumers would be willing and able to purchase at a specific price

5. how population changes affect the quantity demanded at a specific price

Entrance Slip Activity
1. Product prices give consumers and businesses a lot of information besides just the price. What kind of information?
Classroom Activities: Essential Questions
1. Describe the determinants of demand. Why are they important?
2. As the world population ages, will the demand for cholesterol drug increase, decrease, or remain the same? Assume there is a positive relationship between aging and cholesterol levels. Would this cause a change in demand or a change in quantity demanded?
3. Describe some of the reasons why supply changes. Improved technology typically results in lower prices for most products. Why do you think this is true? Describe the difference between a change in supply and a change in quantity supplied.
4. If a strong economic recovery boosts average income, what would happen to the equilibrium price and quantity for a normal good?
5. Suppose the market for tomatoes is in equilibrium, and events occur that simultaneously shift both the demand and supply curves to the right. Is it possible to determine how the equilibrium price and/or quantity would change?

One convenient way to express the willingness-to-pay relationship between price and quantity is to use the inverse demand function. In an inverse demand function, the price consumers are willing to pay is experessed as a function of the quantity available for sale. Suppose the inverse demand function (expressed in dollars) or a product is P = 80 - q, and the marginal cost (in dollars) of producing it is MC = 1q, where p is the price of the product and q is the quantity demanded ad/or supplied.

a) How much would be supplied in a static efficient allocation?

b) What would be the magnitude of the net benefits (in dollars)?