ECON1101 Chapter Notes - Chapter 6: Apple Juice, Aggregate Supply, Aggregate Demand
ECON1101
1) Availability of substitutes: the larger the number of substitutes, the more
elastic demand tends to be (consumers can easily switch to other
products)
2) Definition of a good: this depends on how you define a certain good. If
you take a good as a whole category, then this broad category will be likely
to have no substitutes (i.e. salt) and thus, demand will be inelastic.
However if you consider a certain brand
of salt, then the elasticity for that
particular brand is likely to be high as there are many substitutes
3) Income share: the larger the share of income required to purchase a
good, the higher the elasticity
4) Time horizon: the longer the time horizon, the higher the elasticity
because this provides time for buyers to find alternative substitutes
Chapter 4: Perfectly Competitive Markets (Demand and Supply - An
equilibrium analysis)
Demand and Supply Aggregation
● Let’s say we have two producers of Apple juice. Each of them have
different supply curves due to differences in their respective production
processes. To find the aggregate supply curve (total supply for the
economy), simply take a price, check how much each producer supplies at
this price and then sum up these quantities
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ECON1101
● For the aggregate demand curve, the same concept applies (see diagram
below)
● The aggregate demand and supply is the horizontal sum of the individual
demand and supply curves
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Document Summary
Econ1101: availability of substitutes: the larger the number of substitutes, the more elastic demand tends to be (consumers can easily switch to other products, definition of a good: this depends on how you define a certain good. If you take a good as a whole category, then this broad category will be likely to have no substitutes (i. e. salt) and thus, demand will be inelastic. Chapter 4: perfectly competitive markets (demand and supply - an equilibrium analysis) Let"s say we have two producers of apple juice. Each of them have different supply curves due to differences in their respective production processes. To find the aggregate supply curve (total supply for the economy), simply take a price, check how much each producer supplies at this price and then sum up these quantities. For the aggregate demand curve, the same concept applies (see diagram below) The aggregate demand and supply is the horizontal sum of the individual demand and supply curves.
