ECO 2023 Lecture Notes - Lecture 3: Complementary Good, Substitute Good, Demand Curve

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azurerhinoceros30

10 Sep 2016

School

University of Florida

Department

Economics

Course

ECO 2023

Professor

Mark Rush

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Document Summary

A change in income of buyers causes a shift in the demand curve. Normal goods most goods; demand for these goods increases as one"s income increases. When income increases, the demand curve for normal goods will shift to the right, and when income decreases the curve will shift to the left. Inferior goods demand for these goods decreases as income increases because they are inferior products. When income decreases, the demand for these goods increases because people can no longer afford the nicer products: price of a related good. Substitute goods: goods that can be used in the place of another. Coca-cola and pepsi are substitute goods because they are similar products that are bought individually. A person only buys one or the other. So, when the price of a substitute good increases, the demand for the original product increases. When the price of a substitute good decreases, the demand for the product it substitutes decreases.

Related Questions

Please review the following work and correct me if I have mixed up the concepts of movements and shifts of supply and demand curves. Feel free to copy and edit/correct my mistakes. I'll be waiting. Thanks in advance!!

Changes in price dictate movements along demand curves. When a decrease in demand or the quality demanded occurs it's a safe bet that it's correlated to a price increase, which in turn leads to a resultant surplus of that particular commodity in the marketplace. This is because decreased demand means less of that commodity being sold. On the other hand, a price decrease usually leads to an increase in the demand for a particular commodity, or an increase in sales, which in turn leads to a shortage of that commodity in the marketplace.

To shift the demand curve itself, changes need to occur in other aspects of the market beyond simply a change in the price of a commodity. For example, an increase in income means the consumers have more disposable income. With more disposable income, demand for commodities will increase, and results in a shift of the demand curve itself. In this example, the demand curve would shift right. On the opposite side of the coin, cost increases due to production or losses in efficiency may decrease the side of supply, shifting the demand curve to the left.

Analogous to shifts in the demand curve, shifts along a supply curve occur when prices change as well. When the cost to produce a commodity increases, supply drops, and the supply curve shifts to the left. If the cost of production drops, and supply increases, the supply curve shifts to the right as demand develops.

Pharmaceutical supply and demand is an easy way to understand these concepts.

Drug demand increases: Price decreases, supplies decrease.

Drug demand decreases: Price increases, supplies increase.

Drug supply increases: Production costs drop, demand drops.

Drug supply decreases: Production costs increase, demand increases.

"But where and how do movements and shifts occur in the above?"

purpleworm770

When quantity demanded decreases in response to a change in price,

A. the demand curve shifts to the right.
B. the demand curve shifts to the left.
C. there is a movement down along the demand curve.
D. there is a movement up along the demand curve.
E. the supply curve shifts to the right.

The price elasticity of demand is the measure of the responsiveness of the demand for a good to a percentage change in the price of that same good. When the demand for a good changes due to an increase or decrease in the price of the good, it can be said that the good has a price elastic demand. On the other hand, a good whose demand is not significantly affected by a change in the price levels is price inelastic. For example, luxury goods are usually price elastic because these are not something that most people really need. Thus, when the price of luxury goods increases, the demand for such goods falls. Goods that fall within the latter category are usually the basic necessities such as food and prescription medicine. Even when these types of goods become pricier, most people would find ways to afford them because they need those items to survive.

periwinkleraccoon781

Question 1:-
If new manufacturers enter the computer industry, the [a] curve will [b] to the [c].
----------------------------------------
Question 2:-
Andy views beer and pizza as complements to one another. If the price of pizza decreases, economists would expect Andy's demand for [a] to [b].
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Question 3:-

Various factors cause the demand curve to shift. These can include:

	A.	change in income
	B.	changes in the number of buyers
	C.	changes in future expectations
	D.	all of the above.

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Question 4:-

A drought decreases the supply of agricultural products, which means that at any given price a lower quantity will be supplied; conversely, especially good weather would shift the .

	A.	demand curve to the right
	B.	supply curve to the right
	C.	supply curve to the left
	D.	demand curve to the left

ECO 2023 Lecture Notes - Lecture 3: Complementary Good, Substitute Good, Demand Curve

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