EC201_L05 - Supply and Demand "Teach a parrot the terms...

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Econ 201 - Principles of Microeconomics 1 Supply and Demand “Teach a parrot the terms supply and demand and you’ve got an economist.” ~ Thomas Carlyle Our discussion: 1) Demand determinants and changes in demand 2) Supply determinants and changes in supply 3) Interaction between markets 4) Price controls 5) Black markets 1. Demand-Determinants Determinants of demand include: Income (or wealth), tastes, age, quality, advertising, season, the legality of consuming the good, the cost of maintaining the good in working order, our health, the price of other goods… Does a change in one of these determinants change demand or just the quantity demanded ? A change in any determinant other than the good’s own price has the potential to influence demand… the whole relationship between prices and quantities demanded.
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Econ 201 - Principles of Microeconomics 2 P D 1 Q How does an increase in projected snowfall effect the demand for snowboards? (i.e. a change in tastes) D 2 P D 1 Q How does a change in law allowing for the medical use of marijuana effect the demand for marijuana? D 2 P D 1 Q How does a decrease in what we expect gasoline prices to be next week effect the demand for gasoline today? D 2
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Econ 201 - Principles of Microeconomics 3 P S D 1 P A Q A Q How does an increase in what you expect a firm’s stock price to be tomorrow effect the equilibrium price and quantity of the firm’s stock today? D 2 P B A B • Increase in equilibrium price. • No change in equilibrium quantity. Normal goods are goods for which demand increases as income increases. May include such items as automobiles, vacations, good wine, high-quality electronic equipment. Inferior goods are goods for which demand decreases as income increases. May include such items as Kraft dinner, inexpensive clothes, low cost – high nutrition foods. P D 1 Q How does an increase in income effect demand? D 2 Normal good D 3 Inferior good
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Econ 201 - Principles of Microeconomics 4 Income elasticity = % Δ in quantity % Δ in income For Normal goods the income elasticity is positive, since the change in quantity will be in the same direction as the change in income.
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This note was uploaded on 04/27/2008 for the course ECON 201 taught by Professor Wadell during the Spring '08 term at University of Oregon.

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EC201_L05 - Supply and Demand "Teach a parrot the terms...

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