ECON 202 Lecture Notes - Lecture 2: Coffee Cake, Substitute Good, Technological Change

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<div>Law of demand </div>

<ul>

<li>Rule that, holding everything else constant, when the price of a product

falls, the quantity demanded will increase</li>

<li>When the price rises the quantity demanded will decrease</li>

</ul>

<div>Other factors impacting demand</div>

<ul>

<li>Income</li>

<li>Trends </li>

<li>Preferences</li>

<li>Prices of related goods</li>

<li>Population/demographics</li>

<li>Expected future prices</li>

</ul>

<div>Change in demand</div>

<ul>

<li>Will create a new demand curve on the graph (shift of demand curve)</li>

<li>Need to change one of the “other factors” (i.e. income)</li>

<li>“Increase” = shift to the right</li>

<li>“Decrease” = shift to the left </li>

</ul>

<div>Change in quantity demanded </div>

<ul>

<li>Movement along the curve </li>

<li>NOT a new curve</li>

<li>All other factors stay the same</li>

<li>If you change the price there will be a change quantity demanded</li>

</ul>

<div>Normal goods</div>

<ul>

<li>Demand of the good increases as income rises and decreases as income

falls</li>

</ul>

<div>Inferior goods</div>

<ul>

<li>Demand of the good decreases as income rises and increases as income

falls</li>

</ul>

<div>Prices of related goods</div>

<ul>

<li>Substitutes

<ul>

<li>Goods/services that can be used for the same purpose</li>

</ul>

</li>

<li>Complements

<ul>

<li>Goods/services that are used together</li>

</ul>

</li>

</ul>

<div>Substitute example</div>

<ul>

<li>Good = pizza</li>

<li>Substitute good = burrito</li>

<li>Price of burritos increases = demand of pizza increases</li>

</ul>

<div>Complement example</div>

<ul>

<li>Complement = coffee</li>

<li>Good = coffee cake</li>

<li>Price of coffee increases = demand of coffee cake decreases</li>

</ul>

<div>Expected future prices</div>

<ul>

<li>If consumers expect prices to go down in the future demand will go down

today</li>

</ul>

<div>Law of supply</div>

<ul>

<li>Rule that (holding everything else constant) increases in price cause

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Document Summary

rule that, holding everything else constant, when the price of a product falls, the quantity demanded will increase when the price rises the quantity demanded will decrease will create a new demand curve on the graph (shift of demand curve) need to change one of the other factors (i. e. income) if you change the price there will be a change quantity demanded demand of the good increases as income rises and decreases as income falls demand of the good decreases as income rises and increases as income falls goods/services that can be used for the same purpose price of burritos increases = demand of pizza increases price of coffee increases = demand of coffee cake decreases if consumers expect prices to go down in the future demand will go down today rule that (holding everything else constant) increases in price cause increases in the quantity supplied and decreases in price cause decreases in quantity supplied

Related Questions

The law of diminishing marginal utility (LODMU) states that:

as more and more of a good is consumed, beyond a point marginal utility will increase at a decreasing rate

the quantity of a good demanded will rise as the price is lowered, holding all other factors constant

the demand for goodwill rise as the price is lowered, holding all other factors constant

if an individual increases consumption of one good, then consumption of other goods must decrease because the individual has a finite income and goods have positive prices

none of the above options are correct

redhedgehog209

bronzeeagle519

1 an imperfect market, individual firms

A.are always able to set the price of their product.

B.are able to influence the price of their product.

C.have no influence over the price of their product.

D.take the market price as given.

1 Which of the following is NOT characteristic of a market economy?

Significant government intervention

Little or no government intervention

Buyers and sellers motivated by self-interest

Prices determined by demand and supply

2 In a competitive market, the price of the product is

independently set by each competing seller.

set by the market leader and then copied by other sellers.

jointly set after a meeting of all sellers in the market.

set by market supply and demand.

3 Which of the following firms participates in a competitive market?

A new car manufacturer, such as Ford, Honda, Toyota, or GMC

A software producer, such as Microsoft

A corn farmer

A local electric utility company

4 In an imperfect market, individual firms

are always able to set the price of their product.

are able to influence the price of their product.

have no influence over the price of their product.

take the market price as given.

5 Which of the following firms operates as a monopoly?

A car manufacturer

A local water utility

A corn farmer

A fish vendor at a neighborhood market

6 According to the law of demand, what is the relationship between price and quantity demanded?

Direct

No relationship

Inverse

7 Refer to the following graph. The demand curve slopes downward because
Click to view graphic. (Links to an external site.)

prices and quantity demanded move in opposite directions.

prices and quantity demanded move in the same direction.

prices and quantity demanded have no relationship.

prices and quantity demanded remain unchanged.

8 A change in which of the following will cause a change in the quantity demanded of coffee?

Consumer income

The price of green tea, a substitute for coffee

The number of coffee consumers

The price of coffee

9 Suppose that burgers and fries are complements in consumption. If the price of fries increases

overall demand for burgers will increase.

overall demand for burgers will decrease.

quantity demanded for burgers will increase.

quantity demanded for burgers will decrease.

10 Suppose that Coca Cola and Pepsi are substitutes in consumption. If the price of Coca Cola decreases, then

both the equilibrium price and the quantity of Pepsi demanded will decrease.

both the equilibrium price and the quantity of Pepsi demanded will increase.

the equilibrium price of Pepsi will increase and the quantity demanded of Pepsi will decrease.

the equilibrium price of Pepsi will decrease and the quantity demanded of Pepsi will increase.

11 According to the law of supply, what is the relationship between price and quantity supplied?

Direct

No relationship

Inverse

It depends on the change in price

12 Refer to the graph below. The supply curve is _______________ driven by the law of supply.
Click to view graphic. (Links to an external site.)

13 A change in which of the following will cause a change in the quantity supplied of coffee?

The technology or the production process of making coffee

Anticipation of a change in the price of coffee

The wages of coffee bean pickers

The price of coffee

14 Which of the following will cause a rightward shift in the supply curve for tobacco?

A fall in the number of tobacco farmers in the market

An increase in taxes on tobacco

Removal of government subsidies to tobacco farmers

An improvement in the technology used in the production of tobacco

15 Flour is a factor of production of cupcakes. How will an increase in the price of flour affect the market for cupcakes?

Overall supply will increase

Overall supply will decrease

Quantity supplied will increase

Quantity supplied will decrease

16 Refer to the following image. When a market is in equilibrium, which of the following is true?
Click to view graphic. (Links to an external site.)

Quantity supplied exceeds quantity demanded

Quantity supplied is less than quantity demanded

Quantity supplied is equal to quantity demanded

There is no relationship between quantity supplied and quantity demanded

17 Refer to the following figure. At a price of $15, this market is experiencing a(n)
Click to view graphic. (Links to an external site.)

equilibrium.

shortage.

surplus.

none of the above are true.

18 Refer to the following figure. At a price of $5, this market is experiencing
Click to view graphic. (Links to an external site.)

equilibrium.

a shortage.

a surplus.

None of the above are true.

19 Suppose pasta salad is a normal good. If the price of pasta (a major ingredient in pasta salad) increases and income also increases, the

equilibrium quantity and equilibrium price of pasta salad will increase.

equilibrium quantity of pasta salad will decrease and the equilibrium price of pasta salad may either increase or decrease.

equilibrium quantity of pasta salad may either increase or decrease and the equilibrium price of pasta salad will increase.

equilibrium quantity and equilibrium price of pasta salad will both decrease.

20. What must happen to the market price in order for a shortage to be eliminated?

Price must fall.

Price must rise.

Price must stay the same.

Price may rise or fall depending on the size of the shortage.

ECON 202 Lecture Notes - Lecture 2: Coffee Cake, Substitute Good, Technological Change

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