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ECON 1000 Lecture Notes - Lecture 3: Demand Curve, Relative Price, Opportunity Cost

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lavenderkoala286
22 Jan 2019
School
York University
Department
Economics
Course
ECON 1000
Professor
Ardeshir Noordeh

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ECON 1000 Full Course Notes
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ECON 1000 Full Course Notes
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Document Summary

Chapter 3: demand and supply: demand, market : buyers and sellers (interact face to face or online). Px = where x denotes the donut. Py = where y denotes energy bar. Px py = = opportunity cost: demand if you demand something, you a. want it, b. can afford it, and c. have made a definite plan (decision) to buy it, demand is a downward sloping. The vertical axis is the price and the horizontal is the quantity: wants are unlimited desires or wishes people have for goods and services. Downward slope = demand curve (see fig 3. 1) Q is on the horizontal axis: demand curve is a willingness and ability to pay curve. The smaller the q available, the higher the price someone is willing to pay for another unit. If income increases the demand for normal good increases. If potato is an inferior good, and your income increases, you buy les of potatoes.

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Related Questions

The extended demand function of good Y is:

QdY = 1400-20PX - 10Py+ 0.1M

where: QdY= quantity demanded of good Y

PY = Price of good Y

M = Average consumer income

Px = Price of related good X (related in consumption to good Y)

a)

If M=10,000, Py=50, and Px=50then Qdx=____

If M=20,000, Py=50, and Px=60then Qdx=_____

c) Use these two prices and quantities demanded to calculate the value of the price elasticity of demand between these two points on the demand curve for good Y (use the arc elasticity formula). Show your work and interpret your answer. What will happen to revenues for the suppliers of good Y as the price of good Y decreases from Px=50 to Px=60? WHY?

The generalized demand and supply functions for good X are

Qd = 10 -2Px - 4PY + M Qs = 10 + 2PX

Ā  Where:

Ā  Ā  QD = quantity demanded of good X

Ā  Ā  Ā PX = price of good X

Ā  Ā  Ā M = consumer incomeĀ 

Ā  Ā  Ā PY = price of good Y

Ā 

Ā 

Ā  Ā  QS = quantity supplied of good X

Ā  Ā  PX = price of good X

Ā 

A. Are good X and good Y substitutes or complements? Why?

B. Is good X a normal good or an inferior good? Why?

C. What is the demand function when PY = $4 and M = $600?

d. Use the demand function you found in part c. and solve for the equilibrium price (Po) and the equilibrium quantity (Qo).

e. Find the inverse demand function and the inverse supply function.

f. Sketch this market.

Suppose that the extended (generalized) demand function for good Y is:

QdY= 250,000 - 500 PY -1.5 M + 240 PX

where: QdY = quantity demanded of good Y

PY = Price of good Y

M = Average income of consumers

PX = Price of related good X

a) If M = $ 60,000 and PX = $100, what is the reduced demand function for good Y?

b) Continue using the reduced demand equation from part a,

If M = $60,000, PX = $100, and PY = $200 then QdY = ________

If M = $60,000, PX = $100, and PY = $300 then QdY = ________

Use this information (prices and quantities demanded of good Y) to calculate the price elasticity of demand between these two points on the demand curve of good Y. Show your work.

c) Use your answer to part b. Between these two points on the demand for good Y, is demand elastic, inelastic, or unitary price elastic? Why? What will happen to total revenues if the price increases between these two points on the demand curve?

d) In part b, you found that when:

M = $60,000, PX = $100, and PY = $200 then QdY = ________

Now let's suppose that the price of the related good X decreases from $100 to $50 but income remains constant (at $60,000). Assume that the price of good Y is also constant at $200.

If M = $60,000, PX = $50, and PY = $200 then QdY = ________

Use these prices of good X and the quantities demanded of good Y to calculate the cross-price elasticity of the demand for good Y when the price of good X decreases from $100 to $50.

e) Consider your answer to part d. Based on the value of the cross-price elasticity of demand you just estimated, are goods X and Y substitutes, complements, or unrelated? Why?

f) In part b, you found that when:

M = $60,000, PX = $100, and PY = $200 then QdY = ________

Now let's suppose that consumer income increases from $60,000 to $80,000 but the price of good X remains constant (at $100). Assume that the price of good Y is also constant at $200.

If M = 80,000 , PX = $100 and PY = $200 then QdY = _________

Use these income levels and quantities demanded of good Y to calculate the income elasticity of the demand for good Y when income increases from $60,000 to $80,000.

Show your work

g) Consider your answer to part f. Based on the value of the income elasticity of demand you just estimated, is good Y normal, inferior, or income independent?