Typegoods

Typegoods - Econ 1 Dr Narag Winter 2008 Notes How Goods Are...

Info iconThis preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: Econ 1 Dr. Narag Winter 2008 Notes: How Goods Are Related 1 1. Goods may be classified into three categories which indicate how the quantity demanded of a good is related to income. Case A : Superior Goods / Normal Goods As income rises the quantity demanded of a superior/normal good rises and vice versa. That is, there is a direct relationship between income and the quantity demanded of a superior/normal good. Graphically the relationship between income and the quantity demanded of a superior/normal good is: Income = Y Quantity Demanded 0 Examples of a superior good = luxuries, vacation trips, ski tickets, diamonds, fine china. Really depends on individual tastes and preferences. Case B : Neutral Goods As income changes (either rises or falls) the quantity demanded of a neutral good is unchanged. That is, the quantity demanded of a neutral good is unrelated to income changes. Graphically the relationship between income and the quantity demanded of a neutral good is shown below: Income = Y Quantity Demanded 0 Examples of a neutral good = necessities, salt, basic foods, soap and paper products. Really depends on individual tastes and preferences. Econ 1 Dr. Narag Winter 2008 Case C : Inferior Goods 2 As income rises the quantity demanded of an inferior good falls and vice versa. That is, there is an inverse relationship between income and the quantity demanded of an inferior good. Graphically the relationship between income and the quantity demanded of an inferior good is shown below: Income = Y Quantity Demanded 0 Examples of a inferior good = mass transit, potatoes, baked beans, rice. depends on individual tastes and preferences. Really 2. Goods may be classified into three categories which indicate how they relate to other goods. Case A : Complements As the price of a good rises the quantity demanded of a complementary good falls and vice versa. That is, there is an inverse relationship between a change in the price of good A and the quantity of good B demanded when A and B are complementary goods. Graphically the relationship between the price of one good, A, the the quantity demanded of its complement, B, is shown below: Price of Good A = PA 0 Quantity Demanded of Good B QB Examples of a complementary good = CDs and CD players, skis and ski boots, right and left shoes. Really depends on individual tastes and preferences. Econ 1 Dr. Narag Winter 2008 Case B : Substitutes 3 As the price of a good rises the quantity demanded of a substitute good also rises and vice versa. That is, there is a direct relationship between a change in the price of X and the quantity demanded of good Y when X and Y are substitute goods. Graphically the relationship between the price of one good, X, and its substitute, Y, is shown below. PX Price of Good X 0 Quantity Demanded of Good Y QY Examples of a substitute good = butter and margarine, paper bags and plastic bags, sugar and honey. Really depends on individual tastes and preferences. Case C : Unrelated Goods , or Independent Goods As the price of a good rises the quantity demanded of an unrelated good is unchanged. Graphically the relationship between the price of one good, R, and a good that it is unrelated to, S, is shown below: PR = Price of Good R 0 Quantity Demanded of Good S QS Examples of an unrelated good = apples and cars, cameras and candies, plants and dish towels. Really depends on individual tastes and preferences. ...
View Full Document

{[ snackBarMessage ]}

Ask a homework question - tutors are online