ECON-UA 1 Lecture Notes - Demand Curve, Office Of Gas And Electricity Markets, Inferior Good
8 May 2014
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Document Summary
A model does not necessarily cover every aspect of reality ex. road map doesn"t have trees. Assumptions made by models: simplifying: assumptions made to keep model simple ex. Map assumes there are no trees: critical: assumption that effects the conclusion ex. Map assumes all roads are open for travel. Supply & demand: model that helps us see how prices are determined in many different markets. 2 types of variables: flows: process that occurs over period of time ex. Rate at which water flows into tub: stock: quantity that exists at a moment in time ex amount of water in the tub at a given time. Qd the number of gallons of gas buyers would like to buy in the us each month, given their constraints. Qd = d(price per gallon- , income+, wealth+ , psubstitute. Temporarily hold everything except price per gallon constant. Law of demand: when price of something goes up, demand for it generally goes down.
