[HON 1302] - Midterm Exam Guide - Ultimate 26 pages long Study Guide!

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7 Feb 2017
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St. John's University
HON 1302
MIDTERM EXAM
STUDY GUIDE
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Microeconomics
Lecture 1 1/24/17
Demand, Supply, and Market Equilibrium
Demand
Elements of Demand Graph
1. Price (P) P
2. Quantity (Q)
Q
Slope of the Graph
Negative Slope
Due to the Law of Demand
o The Law of Demand states that people are willing to buy more at a lower price
Thus if prices decrease, people will buy more; and if prices increase, people
will buy less
Inverse Relationship
Determinants of Demand (What Affects Demand)
Tastes and preferences
o What do people want?
Income and wealth
o How much are people making?
Prices of other goods
o How are prices changing for substitute and complement goods?
Expectations
o …of extreme weather
o …of new products
o …of future prices
Changes in Demand
Represented by a shift in the curve
Shown by shifts left or right
o A shift to the right is caused by an increase in demand (1st graph)
o A shift to the left is caused by a decrease in demand (2nd graph)
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Change in Quantity Demanded
Shift of a POINT, not a shift of the curve
If a point moves ‘downslope,’ it represents an increase in quantity demanded
If a point moves ‘upslope,’ it represents a decrease in quantity demanded
Examples of change in quantity demanded:
1. The price of ice cream increases, and as a result people purchased less ice cream
2. The price of ice cream decreases, and as a result people purchased more ice cream
Additional Information
In this class, we will be speaking of demand in the short-term not long-term
o Forecasting in short-term is often very accurate, but long-term forecasting is
horribly inaccurate
Demand and supply rules apply only to free markets (not command economies)
Goods
Types of Goods
1. Substitutes goods that serve as a replacement for other items
a. Plastic vs. paper bags
b. Soda vs. diet soda
c. Store brand vs. name brand
d. Poncho vs. umbrella
2. Complements goods that go together
a. Peanut butter and jelly
b. Toys and batteries
c. Toothbrush and toothpaste
d. Shampoo and conditioner
3. Normal as income increases, you buy more of these goods. If income declines, people
buy less of this good
a. Coffee
b. Housing
c. Insurance
d. Electronics
e. Cars
f. Name brand goods
g. Clothes
4. Inferior as income rises, people buy less of it; as income falls people buy more of it
a. Store brand goods
b. Fast food
c. Public transportation
Price Change Effects
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