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Lecture 3

ECON 101 Lecture Notes - Lecture 3: Ceteris Paribus, Consumer Direct, Inverse RelationPremium


Department
Economics
Course Code
ECON 101
Professor
Robert Gateman
Lecture
3

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ECON 101 Lecture 3 Demand and Supply
1. Demand
a. Definition
i. Quantity Demanded (Qd) is the quantity of good/services that a
household wants to purchase given the price, ceteris paribus
(everything else constant)
ii. Flow variable: over time vs Stock variable: point in time
b. Slope
i. Inverse or negative relationship between the price and the Qd such
that as P decreases, the willingness to buy increases, ceteris paribus
ii. The general shape is a curve that is convex to the origin
1. Reasons for the inverse relation
a. Buyer makes decision by comparing benefits and costs
at the margin
b. As price increases, the net benefit decreases
c. The relationship between the P and the Q the
consumer is willing to purchase, ceteris paribus
d. Qd = f(P; ceteris paribus variable)
Note* D= Demand = the function whereas Qd = Quantity Demanded = a specific value on
the horizontal axis
c. Shifts
i. Ceteris Paribus Variables causes the shifts: the variable that is held
constant to determine the relation between P and Qd
ii.
Variable
Definition
Effect on D
Income (wealth)
Budget of consumer
Normal - direct
Inferior - inverse
Tastes
Consumer
Preferences
Direct purpose of
marketing
Advertising &
Perception of Quality
To increase tastes
direct
P of Related Good in
Consumption
1. Complement
2. substitute
Used jointly and
alternatively
Inverse
direct
Expectations
Prognosis on the
future of above
depends
iii. Complements: used jointly (e.g. milk and cereal) where if the price of
milk increases then the quantity of milk demanded decreases and thus
the quantity of cereal demanded also decreases
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