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Lecture 4

ECON 20A Lecture 4: Lecture 4
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Department
Economics
Course
ECON 20A
Professor
William Branch
Semester
Winter

Description
Lecture 4 I. Demand, Supply, and Market Equilibrium a. Market Demand i. Perfectly competitive market where because of so many buyers and sellers no single person or seller can impact price ii. There are three aspects to individual demand 1. Quantity demanded amount of goods buyers are willing and able to purchase 2. Law of demand all else equal, as the price rises its quantity demanded decreases 3. Demand curve a graph of the relationship between the price of a good and quantity demanded 4. A big part of the course is what makes that demand relationship change, i.e. the forces that would make someone want more of a a good at any given price iii. Deriving Market Demand 1. Suppose looking at the market for coconuts and theres 2 people: Tom and Rob 2. Assume example demand curves for Tom and Rob and derive the market demand curve b. Demand Shifts i. Over time, the relationships between quantity demanded and price may change ii. Example: a health kick may mean people want to consume more coconuts regardless of price iii. This is an example of an increase (or change) in demand iv. Notice: not a change in quantity demanded 1. A change in demand is a shift in the demand curve. 2. Change in demand does not equal change in quantity demanded 3. A change in quantity demanded is a change along the graph. We dont change the relationship, we are simply doing and increase in quantity demanded v. What shifts demand curve? 1. Income a. If income goes up, demand can go up or down depending on the good i. Normal good if demand for a good increases when income increases ii. Inferior good if demand for a good decreases when income increases b. Example: steak normal c. Example: top ramen inferior good 2. Price of Related Goods
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