COMMERCE 1AA3 Lecture Notes - Lecture 5: Kraft Dinner, Ceteris Paribus, Normal Good

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Published on 21 Mar 2016
School
McMaster University
Department
Commerce
Course
COMMERCE 1AA3
Professor
Microeconomics – Lecture 5
Markets
Buyers and sellers have a very small impact on the price
We’re all price takers
Demand
Quantity Demanded (Qd): The amount of goods and services that consumers
are able to buy
Price and Quantity demanded (Qd) have a negative relationship
oPrice Increase, Qd Decreases/Price Decreases, Qd Increases
Law of Demand: Other things equal (ceteris paribus) when the price of a
good rises the quantity demand of that good falls.
Market Demand
Market Demand: Sum of all individual demands
oPaul demands 10 units for $1 and sally demands 6 for the same price,
therefore the market demand is 16
oThe only time we get movement on a curve is if the demand changes
Change in Qd: Movement along the determinant of demand other than price
oIncrease in demand <-> Demand shift right
Shift factors for demand
Normal good, as your income rises you want more of that good
Inferior Good, as your income increases, you buy less of a good (i..e. Kraft
Dinner, Bus rides), Income falls, the Qd will increase
Prices of a related goods
Increases in price of one good Increase in demand for another good
oSubstitues (ex. Coke and Pepsi)
Increase in price of one good decrease in demand for another good
oCompliments (Cars and gas)
Tastes
If people’s preferences change towards a good, demand will change
Expectations
What you expect in the future may affect your demand for a good today.
Number of Buyers
An increase in population will increase demand
-Movement along curve Change in price only
Increase or decrease in Qd
-Shift in curve: Shift factors
-Increase of Decrease in Demand
Supply
Quantity Supplied (Qs): Amount of a good that sellers are willing and able to
sell.
Price and Qs are positively related
oAs Price increases, Quantity Increases
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Document Summary

Buyers and sellers have a very small impact on the price. Quantity demanded (qd): the amount of goods and services that consumers are able to buy. Price and quantity demanded (qd) have a negative relationship: price increase, qd decreases/price decreases, qd increases. Law of demand: other things equal (ceteris paribus) when the price of a good rises the quantity demand of that good falls. Change in qd: movement along the determinant of demand other than price: increase in demand <-> demand shift right. Normal good, as your income rises you want more of that good. Inferior good, as your income increases, you buy less of a good (ie. kraft. Dinner, bus rides), income falls, the qd will increase. Increases in price of one good increase in demand for another good: substitues (ex. Increase in price of one good decrease in demand for another good: compliments (cars and gas) If people"s preferences change towards a good, demand will change.

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