ECON 2030 Chapter : Menu 12 Sept 16

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azuremammoth471

15 Mar 2019

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TODAY’S MENU: Monday 12 September 2016

I. BUSINESS

A. Practice Problems

1. Chapter 4: 3, 4, 6, 7, 10-19, 21

2. Chapter 5: 1, 2, 4, 5, 7, 8, 10

B. First exam: One week from today

II. SUBSTANCE

A. Buyers’ side of market: Demand (D)

1. Determinants of Demand

a. Income

i. Normal good (+)

ii. Inferior good (-)- the income goes up the demand will go

down

b. Price of related goods (not quantity demanded)

i. Substitutes: Increase price (+)- ones that we can identify

based on the price of one

ii. Complements: Increase price (-)- goods consumed

together the price of one impacts the willingness to buy the other

c. Tastes and preferences (+)- something becomes more popular

demand increases, less desirable then it decreases

d. Expectations

i. Future price (+)- impact in the now impacts the price next

week

ii. Future income: normal good (+); inferior good (-)- income

in the future impacts the demand of normal goods

e. Number of buyers (+)- more buyers more demand, less buyers

less demand

2. Graphically

a. Change in Quantity Demanded: movement along curve-

b. Change in Demand: shift of entire curve

B. Sellers’ side of market: Supply (S)

1. Definition

2. Not to be confused with Quantity Supplied (Qs)

3. Determinant of Quantity Supplied

a. Price of good (+)

i. Link with Reservation Price

4. Determinants of Supply

a. Cost of labor (i.e., wages, benefits) (-)

b. Other input costs (-)

c. Productivity (+)

d. Expectations

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Related Questions

This question explores the quasi-linear utility function. Consider Thomas who has preferences over food, QF, and clothing, QC. His preferences are represented by

U (QF,QC) = [alpha]QF^(1/3) + QC

where [alpha] > 0. Let pF, pC, and I represent the prices of food, clothing, and Thomas's budget for food and clothing.

i. Using the Lagrangian method, solve mathematically for the demand function for each good. Make sure to show each step of your work.

ii. Determine whether food and clothing are normal or inferior goods for Thomas. Prove your answer mathematically.

iii. Are food and clothing substitutes or complements for Thomas? Prove your answer mathematically.

iv. Now assume that [alpha] = 3, and I = $1,224.

1. If pf = $3, and pc = $12 what is Thomas's demand for food and clothing?

2. If the price of food goes down to pf = $4/3, what happens to Thomas's demand for food and clothing?

3. If Thomasâ income falls to $996, what happens to quantity consumed of each good?

4. Graph Thomas's inverse demand curve (i.e price on y-axis, quantity on x-axis) for food when his income is I = $996 and the price of clothing is pc = $12. Be as precise as possible, labeling the exact value of any important points on the graph.