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Terms in this set (30)
Where does "demand" belong to?
Demand is just one part of understanding resource allocation in a free market system.
Change in Demand
- A shift in the demand curve, either to the left or right.
- Caused by any
change that alters the quantity demanded at every price.
Shifts in the Demand Curve (VISUAL) - not the price
Changes in price / demand curve
Changes in price are a movement along the demand curve
Changes in anything else / demand curve
Changes in anything else are a shift of the demand curve
Consumer Income: Demand behaviour
As income increases the demand for a normal good will increase.
As income increases the demand for an inferior good will decrease.
Inferior goods
Consumers of inferior goods "trade up" to higher priced goods as soon as they can afford it.
Transportation provides a good example. When income is low, it makes sense to ride the bus. But as income increases, people stop riding the bus and start buying cars.
Consumer Income
Normal Good (VISUAL)
Consumer Income
Inferior Good (VISUAL)
prices of other goods
The price of other goods can also shift the demand curve eg. related goods
Related Goods: alternative choice
Substitutes: When a fall in the price of one good reduces the demand for another good, the two goods are called substitutes.
-> Substitute goods are two alternative goods that could be used for the same purpose.
Prices of Related Goods: Complements
When a fall in the price of one good increases the demand for another good, the two goods are called complements.
Variables That Influence Buyers
On what depends the quantity of a good or service that consumers demand?
on price and other factors such as consumers' incomes and the prices of related goods.
What describes the demand function?
mathematical relationship between quantity demanded (Qd), price (p) and other factors that influence purchases
demand function:
p = per unit price of the good or service
ps = per unit price of a substitute good
pc = per unit price of a complementary good
Y = consumers' income
Example: estimated demand function for pork in Canada
Qd = quantity of pork demanded
(million kg per year)
p = price of pork (in Canadian dollars per kg)
pb = price of beef, a substitute good
(in Canadian dollars per kg)
pc = price of chicken, another substitute
(in Canadian dollars per kg)
Y = consumers' income
(in Canadian dollars per year)
Graphically, we can only depict the relationship between Qd and p, so we hold the other factors constant.
Demand Example: Canadian Pork
Changing the own-price of pork - VISUAL
Changing the own-price of pork simply moves us along an existing demand curve.
Formular
Changing one of the things - VISUAL
Changing one of the things held constant (e.g. pb, pc, and Y) shifts the entire demand curve.
pb up to $4.60 /kg
Ceteris Paribus?
Explain what this means, and why it is a useful assumption
a Latin phrase meaning "other things equal". English translations of the phrase include "all other things being equal" or "other things held constant" or "all else unchanged"
demonstrate the impact of snow on the demand for scarves
a shift of the demand curve to the right
Scarves become more attractive to us at each price.
Demonstrate the impact of snow on the demand for sandwiches
a shift of the demand curve to the left
As the quote suggests, people are less likely to want to buy sandwiches at each price
Companies have marked down the price of their sandwiches. Demonstrate this change using your third demand diagram
a movement along the demand curve
A cut in price is a movement along an existing curve
Remember that price changes are movements along the curve, whereas changes in other factors shift the demand curve
snow: the demand for heating
How will this change?
a shift of the demand curve to the right
Snow, and the cold weather associated with it, increase the demand for heating at every price.
related goods
example?
What happens?
complements
Gas is a complement to cars
- The strength of this correlation depends on how related the goods are
Complementary goods are items that go together, so if the price of one increases the demand for the other will decrease.
If two complementary goods cannot function without each other
perfectly inelastic demand (left and right shoes)
one-sided effect complements
Complements can often have a one-sided effect because of their dependent nature. If tires become cheaper, you don't suddenly decide to buy a car. But on the other hand, if cars become cheaper, you will demand more tires.
reasons for increase in supply
- decrease of input prices
-
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