Econ 103 Lecture 3, week 2
Chapter 4 The law of Demand
-MV = how much one is willing to sacrifice (pay) for additional unit.
-P consumer/buyer gain from purchase unit.
What determines consumption of a good?
-Preferences = MV - take as given
-Budget = income (M)
Price P1 and P2
-nominal M and P's - measured in dollars.
-consumption choice is determined by:
-real income \
}-----> measured in units of goods
-relative prices /
-M = 100
-P1 (jeans) = 100
-P2 (t-shirts) = 25
-Real income = M/P1 = 100/100 = 1 jeans
M/P2 = 100/25 = 2 t-shirts
-M = 300
-P1 = 300
-P2 = 75
-M/P1 = 300/300 = 1 jeans
-M/P2 = 300/75 = 4 t-shirts
-Relative price of good 1 - how many units of good 2 consumer must "pay" for 1 more
unit of good 1.
Relative P of jeans = 4 t-shirts =P1/P2
Relative P of t-shirts = P2/P1 =1/4 jeans
*when real income (M) and relative prices are the same, the consumer will make the
-when relative prices change, consumers change quantities of good they are willing to
Demand Curve ******check notebook for graph****** ( 1 )
-Quantity demanded = amount of good consumer is willing to buy at certain price.
-Demand (curve) = all price - quantity combinations; how many units of the good
consumer is willing to buy at each price.
*Demand = entire curve.
*Quantity demanded = one point on demand curve.
-> when good's P changes, it moves along the same D curve - change in Q demanded.
** NOT a change in Demand, we are staying on the same curve.
- Along (the same) D curve:
-only good's own P and Q change.
-income, O's of related goods and preferences are held fixed.
-> when these change, whole curve shifts
- The Law of Demand - other things equal, there is a negative relati