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Lecture

ECO200 Chapter 2

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Department
Economics
Course
ECO200Y5
Professor
Kalina Staub
Semester
Fall

Description
Chapter  2  Notes   By  the  end  of  this  chapter  you  should  be  able  to:     • Explain  the  law  of  demand  and  determinants  of  demand   • Explain  the  law  of  supply  and  determinants  of  supply   • Define  equilibrium  and  explain  how  Supply  and  Demand  determine  equilibrium  prices  a nd  quantities  in  a   market   • Use  the  Supply  and  Demand  model  to  make  predictions  about  changes  in  prices  and  quantities   • Calculate  elasticity  and  interpret  these  values.   A  market  is  defined  by  a  particular  product  being  bought  and  sold  in  a  particular  location  at  a  particular  time.   e.g.     Competitive  Market-­‐  a  market  with  many  buyers  and  sellers  so  that  no  single  buyer  or  seller  can  affect  the  price   Four  Key  Assumptions  of  the  Supply  and  Demand  Model  in  Competitive  Markets:   1.       2.     3.     4.     Demand   Demand  is  affected  by  (the  Determinants  of  Demand):   1.   2.   3.   4.   5.   6.     ceteris  paribus  –  all  else  equal   To  examine  just  the  effect  of  changes  in  a  product’s  own  price  on  Q D  we  must  hold  all  else  equal  or  assume  the   ________________________________  condition.   1. Q  and  Price   If  you  are  standing  at  a  vending  machine  with  digital  prices,  and  nothing  changes  except  the  price  of  a  bag   of  Doritos  decreases,  you  will  want  to  purchase   _______________  bags  of  Doritos.     Law  of  Demand-­‐    ______________________      OR  ________________ __________,  ceteris  paribas.   Demand  curve:  the  graphical  representation  of  the  relationship  between  quantity  demanded  and  the  price  of  a   commodity,  ceteris  paribas.   Demand  (in  general):  The  entire  relationship  between  the  quantity  of  a  good  that  buyers  wan t  to  buy  and  the  price   of  that  good,  ceteris  paribas.   Activity:  Turn  to  the  person  next  to  you,  and   graph  the  following  demand  curve   Demand  for  toy  mice :   Q =240-­‐2P,  where  Q  is  the  quantity  demanded  in  crates  of  toy  mice  and  P  is  the  price  per  crate.             Inverse  demand  curve:  P=f(    )   What  is  the  inverse  demand  curve  for  the    demand  curve  for  toy  mice  above?     Demand  Choke  Price:  the  price  at  which  no  consumer  is  willing  to  purchase  any  of  the  good  (the  ________________   intercept  of  the  inverse  demand  curve.   What  is  the  Demand  Choke  Price  for  toy  mice?     What  happens  when  a  non -­‐price  determinant  of  demand  changes?   -­‐  If  something  else  that  influences  how  much  people  want  to  buy  changes,  then  ______________  changes  (shift  the   entire  curve)       -­‐If  price  changes,  then  __________  changes  (move  ALONG  demand  curve)       Activity:  With  the  person  sitting  next  to  you,   show  what  happens  to  the  demand  curve  for  mice  in  each  of  the   following  situations:   1. New  research  comes  out  showing  that  toy  mice  are  the  most  stimulating  cat  toys  available.           2. Because  of  the  efforts  to  spay  and  neuter  pets,  the  cat  population  declines  signif icantly.            
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