ECON101 Lecture Notes - Lecture 5: Situation Two, Demand Curve, Inferior Good

19 views2 pages

magentamosquito756

4 Apr 2017

School

University of Waterloo

Department

Economics

Course

ECON101

Professor

Corey Van De Waal

For unlimited access to Class Notes, a Class+ subscription is required.

purplechimpanzee495 and 51 others unlocked

ECON101 Full Course Notes

Verified Note

79 documents

Document Summary

Demand: de= f (pc, poc, efp, cp,p , y, efy, price of the commodity (pc) A change in the price of a commodity will cause a movement of from one point to the next along the demand curve. If the price of a commodity increases, the result will be a movement up and along the demand curve. (decrease in quantity demanded) If the price of a commodity decreases, the result will be a movement down and along the demand curve. (increase in quantity demanded: price of other related commodities, substitutes in consumption. Commodities that can be consumed in place of each other. (example: oil and natural gas: compliments in consumption. Commodities consumed jointly or consumed together. (example: cars and tires) Objective: change the price of a commodity and impact on demand of a second commodity. Situation 1: price of oil increases, demand for natural gas -> shifts to the right (increases) Demand for tires, shifts to the left -> decreases.

Related Questions

Please review the following work and correct me if I have mixed up the concepts of movements and shifts of supply and demand curves. Feel free to copy and edit/correct my mistakes. I'll be waiting. Thanks in advance!!

Changes in price dictate movements along demand curves. When a decrease in demand or the quality demanded occurs it's a safe bet that it's correlated to a price increase, which in turn leads to a resultant surplus of that particular commodity in the marketplace. This is because decreased demand means less of that commodity being sold. On the other hand, a price decrease usually leads to an increase in the demand for a particular commodity, or an increase in sales, which in turn leads to a shortage of that commodity in the marketplace.

To shift the demand curve itself, changes need to occur in other aspects of the market beyond simply a change in the price of a commodity. For example, an increase in income means the consumers have more disposable income. With more disposable income, demand for commodities will increase, and results in a shift of the demand curve itself. In this example, the demand curve would shift right. On the opposite side of the coin, cost increases due to production or losses in efficiency may decrease the side of supply, shifting the demand curve to the left.

Analogous to shifts in the demand curve, shifts along a supply curve occur when prices change as well. When the cost to produce a commodity increases, supply drops, and the supply curve shifts to the left. If the cost of production drops, and supply increases, the supply curve shifts to the right as demand develops.

Pharmaceutical supply and demand is an easy way to understand these concepts.

Drug demand increases: Price decreases, supplies decrease.

Drug demand decreases: Price increases, supplies increase.

Drug supply increases: Production costs drop, demand drops.

Drug supply decreases: Production costs increase, demand increases.

"But where and how do movements and shifts occur in the above?"

purpleworm770

There's a gas shortage in Gasland. You're presented with two proposals that will achieve the same level of reduction in the use of gas. Proposal A would force everybody to reduce their gas consumption by 7 percent (regulatory policy). Proposal B would impose a tax of 50 cents on the consumption of a gallon of gas, which would also achieve a reduction of 7 percent. Consumers of gas can be divided into two groups - one group whose demand is elastic and another group whose demand is inelastic.

Question - How will the proposals affect each group?

a. With both proposals, each group will demand less oil. Their demand curves will shift down.

b. Proposal A would result in a lower quantity of oil demanded (movement along the demand curve). Proposal B would result in less oil demanded (demand curve shifts).

c. Proposal A would result in less oil demanded (demand curve shifts). Proposal B would result in a lower quantity of oil demanded (movement along the demand curve).

d. With both proposals, the quantity of oil demanded will decline for each group, causing a movement down along each demand curve.

*** can you give an explanation of the reason for your answer, so that I can understand if such a question comes up in the future. thank you