ECON 10a Lecture Notes - Lecture 3: Demand Curve, Normal Good, Inferior Good

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Competitive Market
Lots or buyers, Lots of sellers
Agricultural Markets are the closest real life example
Quantity Demanded
The amount the household wishes to buy per month, assuming that it will be able
to buy all it wishes to at current price
“Wishes”
Reality-based
Coiner may wish to have 12 Bentley’s, one per month, but based on his
salary the quantity demanded of Bentley’s is ZERO
Important Assumption!
The coffee will be there
In other words, don’t worry about empty shelves
Quantity Supplied
The amount the firm (farmer) wishes to sell per month, assuming it will be able to
sell all it wishes at current price
Important Assumption!
The customer’s will show up! Someone is coming to buy the coffee
View of Household
Assumptions!
Limited Income
Maybe Bill Gates doesn’t fit this mold, but most families have a
budget
Goods are competing for family’s spending money
Families are trying to maximize their limited income in the most efficient
way
What variables affect the quantity demanded?
1. Price of Coffee (Today)
2. Household Income
3. Household Size
4. Preferences
Benefit people think they are getting from a product
Quality of a product affects preferences
Addictive Nature
5. Prices of “related” Goods
Substitutes
Compliments
6. Expected Future Price
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Terrible weather in South America, causes you to think that the price of
coffee will go up, might cause you to stock up on coffee because it is
storable
Household Demand Curve
The relationship between the price of coffee and the quantity demanded, holding
everything else constant
Variables that affect quantity demanded other than price, (Items 2 - 6) are held
constant
The Household demand curve is very likely downward sloping
The Market Demand Curve
For any price of coffee, this tells us the Total Amount of coffee all household’s
demand for coffee.
Market with 10,000 household demand curve, would have the total of all those
families Household Demand Curves
Coiner doesn’t have a big enough board for this example
Market Demand Curve Example
Two households
The Ricardos
10$ per pound, 3 pounds of coffee
5$ per pound, 6 pounds of coffee
The Smiths
10$ per pound, 4 pounds
5$ per pound, 8 pounds
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